Downshift In The Economic Narrative (Chart Of The Week)
Our featured chart from the EPB Weekly Economic Briefing / Week 25
The economic narrative has started to shift as the first five months of 2024 came with weaker economic data.
Retail sales have consistently disappointed expectations, real personal income growth has cooled, and the employment situation is mixed with contractions in the household survey, offsetting gains in the establishment survey.
The Business Cycle is defined by six major variables, outlined by the National Bureau of Economic Research in their recession dating procedure.
Rather than picking and choosing which indicators to follow, we aggregate all the major Business Cycle variables into a single composite indicator to track the ebbs and flows of aggregate economic activity with the highest level of consistency and accuracy.
The chart below shows this Aggregate Coincident Index, one of many composite indicators we use at EPB Research to track the sequence of the Business Cycle.
We can see a clear downshift in real growth to start 2024.
The May data was dragged down by household employment and real retail sales while it was boosted by industrial production and nonfarm establishment employment.
In any case, economic momentum has clearly slowed in the most consistent and objective basket of aggregate economic activity.
Weakness has reappeared in the economic data; however, there is still no material softening in residential construction employment, which is one of the most important cyclical indicators.
If weakness in residential construction employment starts to appear towards the end of the year, the unemployment rate will jump from its current 4.0% level, further souring the economic narrative.
This chart was featured in the EPB Weekly Economic Briefing, Week 25.
If you enjoyed this post and want to learn more about the EPB Business Cycle Framework or our composite index approach, check out our Free 5-Part Business Cycle Traning Series.
Folks on the ground are already reporting that residential construction is starting to roll over, but it is a gradual process and there are lags in reporting. Being data dependent on lagging data will continue to lead to policy errors. I'll front run it no problem, but for those living paycheck to paycheck, this is going to be painful and possibly lead to additional fiscal and monetary errors.
Baffling!