Fed ADS Index showing contraction, page 1

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Topic started on 9-3-2010 @ 07:22 PM by Dbriefed

Browsing sites on the web (Business Insider) I came across the ADS index.

It appears to track current overall economic health at high frequency, and it's currently indicating contraction. I normally browse the FRED charts so this is one I haven't seen before.

A number of indicators are showing a leveling off of declines, so I'm tempted to think the meltdown is close to bottom and this is the new normal. However another contraction isn't good at all.

www.philadelphiafed.org...

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data. Both the ADS index and this web page are updated as data on the index's underlying components are released.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0.

The vertical lines on the figure provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS
index is based on initial jobless claims and possibly one monthly indicator.

reply posted on 9-3-2010 @ 07:52 PM by Sibilance

An interesting post and chart. Star from me. Some may well see optimism in the leveling off. This would make sense and indicate that the stimulus moves and rock bottom interest rates have worked! I, however, fear this is not the case and a new bottom is on the way in a few years. At some point, the stimulus will end. It has too. This is when I see a new bottom. I feel the market has been artificially propped up. A short-term, yet politically satisfying short circuiting of a much needed business correction. Painful, yes, but necessary. If the businesses such as AIG and GM were to big too fail, they were too big to exist. I fear we have just kicked the can down the road. We have stimulated the heck out of the economy and held the line on interest rates, yet the velocity of money is not there. This to me spells a bigger storm brewing.

By the way, I like your signature block. A "conservative libertarian". I might be one of those!

reply posted on 9-3-2010 @ 08:41 PM by Dbriefed

That was a well thought through reply.

Three indicators that were leveling off and causing me to relax are; 1) unemployment figures that showed a 'Barbell effect' (long term unemployment on one hand for collapsing industries, but short term unemployment on the other hand for those in healthy industries), 2) a leveling off of real estate prices in certain hard-hit areas, 3) a decline in bank failures relative to previous months.

I still have an eye on what happens when the Fed stops buying Mortgage Backed Securities, an increase in Commercial Realestate defaults and resulting midwest bank failures (and FDIC office buildout in Chicago), shrinking credit, and state and sovereign debt issues.

At times I thought I was aligned with either one the two major parties until I saw the extreme sides of those parties and capitulation to regulations that no one is happy with, personally I am more conservative than those extremes, and I want all levels of government to just leave me and my wallet alone. Therefore 'Conservative Libertarian'.

reply posted on 9-3-2010 @ 09:39 PM by Sibilance

Right on. I think the dreaded mortgage resets that you alluded to are the next obstacle. This is the next bubble that I see. That too can be manipulated, but with what long-term outcome?

I share your misgivings about the two major parties. 2 years or 4 years is the American political definition of long term. Easy money is the politicians' best friend. That is perhaps the only bipartisan issue that the D.C. crowd truly agrees upon. Keeping the rates low makes houses affordable and loans to small business and individuals doable. We can continue to deficit spend and finance the social spending and other endeavors (for example, two wars) that we cannot pay for. Every politician can agree with that. But what happens to the dollar as a store of long term value?

We are starting to find out.

What perplexes me is that our precious metals in gold and silver may have hit a peak. Same with commodities. This is confusing to me. I am not sure that anyone knows how to read these tea leaves.

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