These are the same numbers as in the previous chart, but on a month-to-month basis, which can provide a better short-term signal. February’s job creation was very strong, reversing a disappointing January headline number and alleviating some of the concern about this indicator. Total employment growth continues to be healthy, at the upper end of the range for this recovery.
Yield Curve (10-Year Minus 3-Month Treasury Rates)
Signal: Green light
Rates for the 10-year Treasury dropped substantially over the past month, while 3-month rates fell only slightly; the spread between long-term and short-term rates dropped accordingly. Although the spread remains at healthy levels, as with other metrics, the trend over the past couple of months has changed from positive to negative, and it has now extended long enough to suggest a fundamental negative shift.
Consumer Confidence: Annual Change
Signal: Yellow light
Consumer confidence growth decreased again this month, to an eight-month low, dropping the year-on-year growth rate even further below zero for the first time since early 2013. Along with the other changes in trend, this metric suggests that consumers, the main driver of the economy, are starting to worry. Although the year-on-year growth rate remains well above problematic levels, the combination of the recent negative trend and the drop below zero indicates that a worry point may not be too far off. This is the fourth month in a row that this metric has flashed a yellow light.
Conclusion: Keep a close eye on things
Although a slowdown remains quite possible based on the data, a slowdown is not a recession. Beyond that, the continued strength of employment, the most important of the indicators—as well as the near-stabilization of the ISM Non-Manufacturing Index—suggests that the downward trend may be moderating or even starting to improve in the first quarter. Other leading indicators also suggest that the slowdown may be passing.
More yellow lights next month are a real possibility, but not a certainty. On balance, current conditions still warrant a green light for the economy as a whole.
With the exception of consumer confidence, all of the major signs continue to be positive. At the same time, all except employment show multi-month changes in trend downward.