The Practical Economist

SCORECARDS - July 17, 2017

Current Scorecard - Domestic

July 2017

Current Scorecard:  9                                                          

Full Scorecard:

                                                                                                               Current                    Last                       Three
                                                                                                                Month                   Month                  Mos. Ago

  OVERALL              4
 LEADING & CONFIRMING SCORE              9  
              10               15
 Leading Indicators              3                 3
Confirming Indicators            15               17
 Foundation           -18 

As you can see the Leading Indicators are suggesting that the economy is continuing to cool down.

We hope we do not have to remind that 'cooling down' is not the same thing as 'contracting.'

And, if we err on the side of trying to make it easy to take away from the numbers an understanding of what it is that's changing the good news for us is that the data makes that very easy this month.

The Confirming Indicators continue to report that the current situation is softening.  How can that most efficiently be described? 

Well, it's true that labor gains continued to come at a strong pace.  And Industrial Output is stable...not growing, though.  But, even as growth in Disposable Personal Income slowed from 3.3% to 1.8% in six months, Inflation grew at a quickening pace, from 1.6% to 2.4%. 

Do we really need to say much more after that?

If it's true that the Leading Indicators suggest that more of the same is to come in the near future, it's also true that they suggest that, if there is slight debt pressure on earnings in the commercial sector, it's also true that the credit markets are fundamentally mildly sanguine--mostly demonstrated by stable spreads between the yields investors are demanding for long-term debt over the cost of short-term debt.  Nothing in that area suggests that the credit market foresees a significant tightening on the horizon.

In other words, you should continue to expect a softening, but you should expect that softening to likely be temporary.

Is this a good time to remind of our long-term theory about where long-term rates are headed?  Of course it is.

Current Scorecard - Global

June 2017

Current Scorecard:  0

Full Scorecard:


                                                                                                               Current                    Last                      Three
                                                                                                                Month                   Month                  Mos. Ago

  OVERALL                -3
 LEADING & CONFIRMING SCORE                 0               0
 Leading Indicators                 0              -1
Confirming Indicators                 0              -1
 Foundation              -12 


We're going to try to dispose of this month's digest of the globe quickly.

The first point to know is that, the credit markets are simply reflecting a phlegmatic outlook.  Direct manifestations of that perspective are reflected in the fact that improvement in the global labor market is slowing down. 

But, here's where the figurative rubber meets the road: inflation is rising, but not faster than is justified by depreciation in currencies and rising commodity prices.

A few points to explain the above statement:

1.  Rising inflation, other things being equal is a positive forward-looking indicator.

2.  Rising inflation, when it came be explained merely by declining currencies and by rising commodity prices, is simply a realignment of equilibrium, and not necessarily negative.

3.  However, when currency depreciation and upward pressures on commodities are greater than the resulting inflation landscape, you are facing the prospect of a contracting economy.

And that is precisely where things stand.

Expect a global economic upturn with perspiring hands.

Understanding the Scorecards

Domestic Scorecard

The Scorecard is our concise means for measuring the current level of strength in the economy, where the economy is headed, and how sustainable expansion is.

The components:

  1. Overall Grade is a consolidated measure of how strong the economy is now, where the economy is headed, and the risk factors that pose a threat.
  2. Leading Indicators provide a reading on the primary drivers of the economy.  
  3. Confirming Indicators are a good read on how things are at the moment.  
  4. Risk Factors measure significant threats to economic expansion.

The grades: 

The grades are not unlike school grades.  The scale goes from -100 to +100.  Anything within a range of -16 to +16 roughly indicates a maintenance of the status quo, though, with higher or lower figures indicating the direction in which the economy is trending.   

Global Scorecard

Our Global Scorecard uses the same numerical scale as the Domestic Scorecard.  It includes the United States.