A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Data Reveals Bleak Economy Has Firm Hold in Fed Districts

Despite a flurry of upbeat news, the economy's worst days may not be behind it after all...

To be sure, much of the news lately has been positive. The economy grew at a 2% annual rate in the first quarter, double expectations; in April, stocks had one of their best months in years; and the latest signs from manufacturing suggest the sector is bottoming out. Wednesday, the Commerce Department said factory orders rose 1.8% in March from February, seasonally adjusted, thanks mostly to transportation.

On closer inspection, however, the picture is less comforting. While consumer spending was surprisingly resilient in the first quarter, it weakened as the quarter progressed. In March and April, a key variable in the spending equation -- employment -- worsened.

Last Friday's report on first-quarter gross domestic product "is telling you what's going on outside your window over the past few months. It's not a good leading indicator," said Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York. By contrast, initial claims for unemployment insurance "are going the wrong way fast," he said. Claims topped 400,000 in late April, the highest in five years and up 44% from a year earlier.

Mr. Achuthan noted that while the National Association of Purchasing Management's index of manufacturing activity rose a touch in April from March, the employment portion fell. That suggests job cuts are broadening.