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/region’s economy. Is the economic data improving or deteriorating?
Let’s take a look at U.S. economic data as of February 2018.
The U.S. unemployment rate has been flat for the past 3 months. The trend is still DOWN.
U.S. inflation is stabilizing just above 2%. I expect inflation to slowly rise throughout 2018.
Initial jobless claims
Initial jobless claims continue to make new lows. This is a long term bullish sign for the stock market because jobless claims tend to rise before a bear market begins.
Private nonfarm payrolls.
Private nonfarm payrolls are slowly trending down. This is normal. Private nonfarm payrolls tend to peak during the middle of an economic expansion. We are in the final quarter of the current economic expansion.
After a surge in the 2nd half of 2017, the ISM Manufacturing PMI is flat.
Industrial Production growth
U.S. Industrial Production continues to grow at a faster and faster rate. This is partially due to an increase in oil prices. Expect growth to slow down once oil prices stop rallying so quickly.
Small Business Optimism
The NFIB’s small business optimism index has peaked. Historically, this is as high as it gets.
Total Vehicle Sales
Total Vehicle Sales have been falling over the past few months. Historically, Total Vehicle Sales typically peak a few years before a recession begins.
U.S. Consumer Sentiment continues to trend higher.
Retail Sales growth
U.S. Retail Sales growth has trend higher over the past few months.
New Home Sales
U.S. New Home Sales continues to trend higher.
U.S. economic growth has accelerated over the last few months. The data might deteriorate a little in the short term because it’s “too good”, but there are no signs of long term deterioration. Hence, the Medium-Long Term Model predicts that this economic expansion has 2 years left.