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 March 2018.
The U.S. unemployment rate has been flat for the past 4 months. The trend is still DOWN.
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.
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 begins.
Private nonfarm payrolls.
Private nonfarm payrolls increased a little bit in January, but the overall trend is 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.
ISM’s Manufacturing PMI jumped last month. The Manufacturing PMI is trending higher.
Industrial Production growth
U.S. Industrial Production growth is flattening because oil is in a correction. However, this data series is still trending higher.
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 6 months. Trump’s steel and aluminum tariffs will harm vehicle sales a little bit by raising costs (and vehicle prices).
U.S. Consumer Sentiment continues to trend higher.
Retail Sales Growth
Retail Sales growth is starting to trend down.
New Home Sales
New Home Sales has fallen over the past 2 months. However, this data series is still trending higher. We need to watch this economic indicator in case there is sustained deterioration.
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.