Economic Indicators Dashboard – April 2015 update

Let’s take a closer look at a few of the indicators on the May 2015 Economic Indicators Dashboard and decipher what it may mean to the macro environment.

Accessed on 5/18/2015

Accessed on 5/18/2015

How do I read this chart?

This dashboard is intended as a tool to set context and perspective when evaluating the current state of the economy.
For each indicator, the horizontal bar shows four things.

    • A blue color band represents the typical range for this indicator. +/- 1 standard deviation of historical values for the indicator fall in this range.
    • An orange marker shows the most recent value – the closer the marker is to the blue bar, the closer it is to historically typical conditions.
    • A grey area outside of the blue band which shows the range actual conditions.
    • An arrow shows the most recent three-month trend indicating if it is moving toward or away from the typical range

    Yields are on the move! Although still at historically low levels and outside of the “typical range,” the yield on 10-Year U.S. Treasuries solidly crossed the 2% threshold. The Yield Spread also increased in recent months – up from 1.63 in January dashboard reading. The increase in yield spread means the yield curve is steepening (the yield on 10-year notes are rising faster than 3-month T-bills), which implies an increased expectation for higher interest rates in the future and may also signal an expectation for higher future inflation.

    As the economy continues to improve, we expect yields to continue their ascent, bolstered by expectations that the Federal Reserve will act to increase short term rates later this year.

    Economic growth (as measured by GDP) was weaker than expected in the 1st quarter, coming in at 0.20%, lower than the 2.20% of 4th quarter of 2014. Prognosticators suggest that slower U.S. economic growth may delay the widely anticipated Federal Reserve hike in interest rates until the end of 2015. We expect economic growth to fluctuate somewhat, but remain positive.

    Home prices continue to improve since the beginning of the year. The combination of strengthening demand and still-low financing interest rates continues to drive prices up.

    Inflation remains muted. In fact, consumer prices appear to have fallen into negative territory in the year-over-year results. This was largely driven by the fall in energy prices. The expectation is for inflation to remain moderate in the near term; at or below 2%. Russell’s expectation is for inflation to remain moderate in the near term; at or below 2%.

    The bottom line

    Fed-watching has become the favorite activity of market pundits and market participants of late. The biggest change coming to the macro environment is the anticipated move to tightening of the money supply. The Federal Reserve is closely watching the strength of the economy to determine when to begin raising interest rates. If economic indicators shows sign of consistent strength, then it may be time to start unwinding the quantitative easing program currently running in the U.S. If there are signs of weakness in the economy, the Federal Reserve may determine that the economy is too fragile to begin tightening now.

    This seems to be the consensus from the last U.S. GDP release (April 29, 2015) and Fed statement minutes (April 29, 2015). Everyone is watching the Fed, and the Fed is watching the economy. Whatever the timing, when the Fed does take action it is likely to get the markets’ attention – at least for the short-term.

    Standard Deviation is a statistical measure that reflects the degree to which an individual value in distribution tends to vary from the mean of the distribution. Standard Deviation is a useful tool in measuring the historical typical range as 1 Standard Deviation includes approximately 68% of the historical values in a normal distribution. Using this measurement allows us to exclude the more extreme values which would not be as probable to see from the indicator.

    Data stated is historical and not a guarantee of future results.

    Data displayed in the Economic Indicators Dashboard are reflective of current data as provided by the data sources including any revisions to previous data. These revisions may change historic data points and historic ranges for some or all indicators. These changes are usually due to seasonal adjustments to previously supplied data.

    The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. It is not intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Anyone using this material should consult with their own attorney, accountant, financial or tax or consultants on whom they rely for investment advice specific to their own circumstances.

    Indexes are unmanaged and cannot be invested in directly.

    Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

    Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide, including Russell Financial Services, Inc., member FINRA. Russell Investments is part of London Stock Exchange Group.

    Copyright © Russell Investments 2015. All rights reserved.

    This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.

    RFS 15256

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