Our proprietary Astor Economic Index® is still showing strong growth in the US economy. The index is currently at near top of the fairly narrow range it has been in during 2018.
The labor market continues to add more jobs than is required to keep up with the natural growth of population. We can see this in the employment population ratio of workers aged 25-54 years. This so-called prime age is above the average for the last recovery for the first time in the current expansion.
Interestingly, the U-6 unemployment rate (also called the “underemployment” rate), which includes many workers excluded from the headline unemployment rate, has been below the best rate achieved in the last recovery for several months and is near the low of the tech boom of the late 1990s – see chart below. Overall, the signs point to an improving labor market with solid but not excessive wage gains.
The world environment continues to be my biggest source of concern about future weakness. The volume of world trade is increasing at a slower pace than at the beginning of the year, according to the Dutch think tank, CPB. At Astor we weight major countries purchasing manager’s gauges to look at the global environment, which you can see in the chart below. It’s important to note that this measure is still strong today, but we should also recognize it looks to be somewhat off its peak. We will be monitoring the international environment under trade threats closely. Given that the US trade policy seems to be mainly focused on the domestic political environment, in my view risks of additional market moving headlines will remain strong going into the mid-term elections in November.
The economy today seems to be evolving the way the Fed likes to see. Inflation is quite near the target but does not look set to explode and the labor market continues to perform well. The Fed has telegraphed one or two more hikes this year, as seen by the conventional interpretation of the Fed funds futures curve. At two more hikes the Fed will be near its neutral rate – the rate where it’s neither stimulating nor restricting the economy. I think the Fed may pause and await for a clearer signal from the business cycle at that point.
As always, we at Astor will be monitoring the economy closely to inform our investment decisions. To see more of our weekly collection of economic charts, visit www.astorim.com/charts.
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The Astor Economic Index® is a proprietary index created by Astor Investment Management LLC. It represents an aggregation of various economic data points: including output and employment indicators. The Astor Economic Index® is designed to track the varying levels of growth within the U.S. economy by analyzing current trends against historical data. The Astor Economic Index® is not an investable product. When investing, there are multiple factors to consider. The Astor Economic Index® should not be used as the sole determining factor for your investment decisions. The Index is based on retroactive data points and may be subject to hindsight bias. There is no guarantee the Index will produce the same results in the future. The Astor Economic Index® is a tool created and used by Astor. All conclusions are those of Astor and are subject to change.