State of the U.S. economy in April 2018


The stock market and economy move in sync over the medium-long term. That’s why it’s extremely important to understand the state of a nation’s economy. Is the economic data improving or deteriorating?
Let’s take a look at U.S. economic data as of April 2018.
Unemployment
The U.S. unemployment rate has been flat for the past 5 months. The trend is still DOWN.


The unemployment rate is extremely low right now (when compared to history). We aren’t concerned yet, but we are watching out for a sustained increase in the unemployment rate.
Inflation
U.S. inflation is hovering just above 2%. Various signs point to a pick up in inflation throughout 2018. Current economic data suggests that inflation will be at 2.5% by the end of 2018.
*Many investors expected inflation to “surge” in 2018. This is clearly not the case.

Initial jobless claims
Initial jobless claims continue to make new lows for this economic expansion. This is a long term bullish sign for the stock market because jobless claims tend to rise before a bear market and recession begins.


*Initial Jobless Claims are very low right now (historically speaking). We are not concerned yet, but we are watching out for any sustained and significant increase in Initial Jobless Claims.
Private nonfarm payrolls
Private nonfarm payrolls have increased for 2 consecutive months and have sustained a high level. This is a medium-long term bullish sign because private nonfarm payrolls tend to fall before a bear market and recession begin.


Manufacturing PMI
The latest reading of ISM’s Manufacturing PMI spiked. It has been trending higher.


Industrial Production growth
Industrial Production growth jumped in its latest reading. This data series is trending higher like the ISM Manufacturing PMI.


Small Business Optimism
The NFIB’s small business optimism index is still going up a little bit, but it can’t go up by much more. Historically this is as good as small business optimism gets.

Total vehicle sales
Vehicle sales have been falling over the past 5 months. Keep in mind that vehicle sales is an extremely early leading indicator for recessions and bear markets. Total Vehicle Sales can start to trend down 4 years before a bear market and recession begins.


Consumer Sentiment
U.S. Consumer Sentiment continues to trend higher and make new highs.

Retail Sales Growth
Although Retail Sales Growth was flat last month from the previous month, it is still starting to trend down.


New Home Sales
New Home Sales has been falling over the past 3 months, but it is still trending higher. This is not a problem as long as New Home Sales don’t continue to fall over the next few months.

Conclusion

U.S. economic growth is solid, although there are a few small signs of weakness. This is not a concern yet because the data is improving overall. HOWEVER, we are watching for any signs of sustained weakness in the data because the next recession will lead to a bear market in stocks (e.g. 40%+ decline). The Medium-Long Term Model states that this bull market still has 1-2 years left.
*It’s not the month-to-month data that matters. It’s the overall trend in the data.

11 comments add yours

  1. Hi Troy,
    Great blog! Do you include LIBOR3M in your outlook?
    I do remember from Market Wizards that rapid spike is leading indicator of bear market.

    • Hi Greg,
      I do watch LIBOR3M, but it is not the economy. I think LIBOR3M is spiking right now primarily due to the Trump tax cut. U.S. companies are pulling a lot of their cash from overseas.
      Same symptom, but not the same underlying reason (people usually assume that a LIBOR3M spike = financial market problems).

  2. Thanks Troy for pulling all this information together. I respect and appreciate your analysis. Best regards.

  3. Hey Troy! I am a beginner trader and thank you for writing this blog as I find your blog extremely helpful. I just have a question about your daily routine when it comes to stocks, such as what do you first do, look at, read etc. For example, how often do you take a look at the unemployment rates, inflation rates, and do you check the news every hour things like that. Thanks for everything!

  4. Hi Troy:
    Could you make a study on how the market usually performs before a bear market? You’ve mentioned in passing a few times that it roars; some research would be great.
    Thanks.

  5. Troy
    I have recently been reading your postings.
    I think this bull mkt will hit a new high in 2nd half 2018 before the next correction.

  6. Hi Troy
    Thank you and appreciate your postings.
    A real eye opener for me although I do not trade the stock mkts.

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