In the past month, US economic growth has remained “above trend,” as reported by the Chicago Fed National Activity Index, which aggregates 85 economic indicators. The three-month average of this index (CFNAI-MA3) has now recorded a positive reading for four consecutive months, landing at +0.09 for February. While this reflects a slight decline from January’s revised figure of +0.28, it aligns with recent econometric forecasts. Crucially, the overarching conclusion is that the risk of a recession remains low as of last month.
The interrelationship between oil prices and the US dollar exchange rate is well-known and significant. Since crude oil is primarily priced in dollars on the global market, one would expect a close association between this vital commodity and the most prominent reserve currency worldwide. However, while this relationship is evident, it is not always fully recognized. A recent study by economists from Ghent University emphasizes the historical context, noting that “An appreciation (or depreciation) of the dollar exchange rate is usually linked to a decline (or rise) in both global oil prices and oil production, indicating a corresponding drop (or increase) in global oil demand,” as detailed in their paper, “The U.S. Dollar Exchange Rate and the Demand for Oil.”
● Investing in the Age of Sovereign Defaults: How to Preserve your Wealth in the Coming Crisis
By Peter Treadway
Q&A with the author via publisher, Wiley
Q: What is the principal theme of your book?
A: The major Western democracies, including Japan, are facing significant financial challenges. They are burdened by substantial debt, and upcoming health and retirement entitlements are expected to escalate. This could lead to defaults on these obligations and/or existing sovereign debts, potentially targeting investors and the private sector with confiscatory taxes. The book discusses strategies for investors to navigate these challenges.
Currently, business cycle risk appears to be minimal, based on the latest estimates derived from an index of four primary markets. The Macro-Markets Risk Index (MMRI) from The Capital Spectator registered at 12.8% as of yesterday (March 21), well above the concerning threshold of 0%, and consistent with the 10%-to-15% range observed throughout this year. A reading below 0% implies heightened recession risk; in contrast, positive values suggest ongoing economic growth.
According to The Capital Spectator’s latest econometric forecast, the three-month average of the Chicago Fed National Activity Index (CFNAI) is anticipated to decrease slightly to +0.12 in the February update. This is a drop from January’s average of +0.30. A value below -0.70 signals an “increasing likelihood” of a recession having commenced, as per guidelines from the Chicago Fed. The February report is set to be released on Monday, March 25.
Last week, jobless claims saw a slight increase but remained just above five-year lows, as reported by the Labor Department recently. This update is a positive indication of the expectation for continued modest job growth in the near term. Claims have recently reached levels that haven’t been seen for several years, and their stability suggests a sustained bias towards economic expansion. Additionally, the four-week moving average of claims has dropped to another post-recession low, further reinforcing a positive outlook.
The recovery in the housing sector has “taken almost everyone in the industry by surprise,” according to a report by the New York Times recently. Regardless of being unexpected, this recovery is tangible. Demand for housing is rising while supply is diminishing. These dynamics imply that the current momentum in housing, a vital component of the US economy, is likely to persist.
Target Date Funds: Still Off Target?
Marc Fandetti (Meketa Investment Group) | March 6, 2013
This article briefly evaluates the performance and structure of “shorter-dated” target date (TD) funds, defined as those aimed at participants approaching or already in retirement. According to data from Morningstar, which tracks 111 such funds, these investments significantly underperformed during the severe market downturn of 2008, often more than investors anticipated. Alarmingly, many shorter-dated TD funds continue to be overly aggressive in their investment strategies, yielding performance and risk profiles akin to those of pension funds.
Given that pension funds typically have a longer investment horizon than most shorter-dated TD fund investors, this makes the average shorter-dated TD fund excessively risky for near-retirees. While the prospect of a steep market decline may seem distant amid current exuberance, the risk of significant losses remains. A swift review of these funds reveals a lack of suitable conservative options for those at or near retirement. Plan sponsors should consider alternative investment strategies, such as “custom” TD funds, when the risks and returns of standard shorter-dated TD funds resemble those of pension funds.
The business cycle continues to favor residential construction activity. In February, housing starts experienced a modest rebound, increasing by 0.8% to a seasonally adjusted annual rate of 917,000, as reported by the Census Bureau recently. This slight increase follows a substantial 7.3% decrease in January. Despite the month’s volatility, the year-over-year comparison for housing starts remains robust, which bodes well for residential construction in the coming spring.
Recent updates suggest that US GDP is projected to grow by 3.1% in the first quarter of 2013, according to The Capital Spectator’s latest econometric nowcast. This marks a significant increase from the previous nowcast of 2.0% for Q1, as noted on February 26 here. (GDP percentage changes are reported as real seasonally adjusted annual rates.)
This article examines recent economic trends and their implications for growth, investment, and risk in the United States. It highlights key indicators such as GDP predictions, jobless claims, and housing market dynamics. Understanding these factors can provide valuable insights into navigating the current economic landscape.
In conclusion, the overall economic outlook appears to remain positive, with various metrics indicating growth and stability. Continued monitoring of these indicators will be crucial for making informed decisions in both investment strategies and policy-making.