Here’s the Steadily Improving Economic Outlook for 2014
It’s that time of the year. I can’t let the pundits pontificate without throwing my opinion into the ring. This post will take you on a tour of the individual components of The Conference Board’s leading and coincident indicators as described in Chapter 2 of my new book Applied Equity Analysis and Portfolio Management. The chapter describes how to analyze the level and trend of each indicator, synthesize your analyses into discrete scores of -1, 0, or +1, enter these values into the chapter spreadsheet (included with the book), and let the spreadsheet average your scores into a diffusion index for each set of Conference Board indicators. We’ll start with the leading indicators, which are depicted in the table below, along with the weights assigned by The Conference Board.
We’ll start with the Leading Indicators. The most heavily-weighted component is the Average Length of the Manufacturing Workweek (weight = 0.2781), shown below with total employment in the manufacturing sector.
The length of the workweek has regained its pre-recession level, which is typically interpreted as a positive signal. Unfortunately, as also shown in the graph, this longer workweek is being enjoyed by 5 million fewer employees in the U.S. since the start of the 2008 recession. Although the length of the workweek is up, the dramatic contraction in manufacturing employment leads me to score this indicator zero, rather than a more optimistic +1.