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AIER’s Leading Indicators model rebounded in May to the neutral level of 50, following two months at 38, which had indicated a somewhat higher risk of recession.
READ MOREAIER’s Business-Cycle Conditions model rebounded in May to 50, a neutral position, following two months at 38, a level that had indicated economic weakness. This uptick supports our expectation that a strong labor market would boost consumer sentiment and spur further gains in consumer spending. It also justifies our reluctance to assert that a recession was likely when our index first fell below neutral. With our Leaders back at the 50 threshold, AIER researchers judge the risk of recession has receded, although it is still slightly elevated.
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Shock and disappointment from the weak May jobs report lingers, but data today from the Bureau of Labor statistics offsets a bit of the uneasiness.
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Here at AIER, we use our data-driven Business-Cycle Conditions model as a barometer of the health of the economy, and the risk of recession. Last month, we saw quite a shift downward, as our index of leading indicators fell below the neutral level of 50 for the first time in 110 months. Today we are releasing this month’s results, and our model shows the Leaders index unchanged at 38.
READ MOREThe AIER Business-Cycle Conditions model shows the Leaders index unchanged at 38 for a second straight month (Table 1). While a reading below 50 reflects significant economic weakness, we believe it remains too early to conclude that a U.S. recession is likely in the next six to 12 months.
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According to data from FactSet, more than 80 percent of the companies in the S&P 500 have reported first quarter earnings through this morning. Overall, earnings reports have been better than expected, with almost 72 percent beating analyst expectations. Despite the beats, earnings growth overall remains negative, with reported earnings per share down about 7.8 percent from a year ago.
READ MOREHere at AIER, we predict recessions based on our time-tested, data-dependent Business-Cycle Conditions model. Our April report, which we are releasing today, shows a decline to 38 in our index of Leaders, its first drop below the neutral 50 level in 110 months. We should take notice. But why did it drop?
READ MOREThe data we track to monitor economic trends indicate a weakening economy in the coming months. The latest update of the AIER Business-Cycle Conditions model shows a decline to 38 in our index of Leaders, its first drop below the neutral 50 level in 110 months. While this reflects spreading weakness and suggests caution, it is too early to call a recession for two reasons.
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U.S. equity markets have rebounded sharply since mid-February but the performance gap between large caps and small caps is significant.
READ MOREAlcoa’s earnings report is typically considered the unofficial start of earnings reporting season. The company is due to deliver results today after the U.S. equity market closes. However, according to data compiled by Factset, 22, or 4.4 percent, of the 505 companies that are currently part of the S&P 500 have already reported first quarter earnings.
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The economic outlook is modestly upbeat, but rife with risks. As we approach the seventh anniversary of the end of the worst recession since the Great Depression, the economy has made substantial progress. There are reasons to believe that later this year businesses could feel more confidence in hiring and making other investments. But obstacles remain.
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With fourth quarter corporate earnings reports nearly complete, and the beginning of first quarter 2016 earnings reports less than a month away, a final look at the tally suggests corporate earning power remains challenged by slow growth.
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