Our proprietary Astor Economic Index® is still showing strong growth in the US economy, though the index is near its low for 2018. The economy has thus far proved itself resilient to escalating trade tensions and steadily rising interest rates.
Financial stress in October
The most dramatic event in October was the selloff in global equity markets. There was no unambiguous catalyst for the move with everything from trade tensions to technical levels garnishing some of the blame depending on commentator.
The poor performance of riskier assets was not confined to the equity market. The Astor Financial Stress Index increased dramatically in October. The AFSI is designed to be a metric of broad-based signs of strains in the financial system, including stock volatility as measured by the VIX but moving beyond it into other measures which can be a sign that tensions are not merely equity centric. We will have to see if this will be a spike similar to the one early this year, or a more extended period of lower prices for risky assets as we saw with the energy recession of 2015-2016.
Labor market strong
The labor market continues to impress. This month we feature the year on year change in non-farm payrolls and I want to emphasize how steady this line looks since the recovery began in earnest in late 2010. If the labor market is truly as tight as the rock-bottom unemployment rate suggests, we would be expecting to see the number of jobs added each month decline while it has held quite steady. In fact, it seems that workers are being lured into the labor market who were not showing up as looking for work previously. There are also promising signs of employees beginning to receive wage increases which, other things being equal, will tend to boost output.
Fed still tightening
The state of the labor market is such that the federal reserve is not likely to be swayed from their course of gradual tightening. Inflation is at the fed’s target of 2% in PCE inflation (the blue line in the chart below) and while wages are increasing they are not currently accelerating at a rate that is going to concern the central bank. On the other hand, there is no sign that the rate hikes to date have taken the steam out of the expansion. We expect the fed to stay the course of gradual hikes until there is evidence either way that inflation is increasing more rapidly than comfortable, or the fed detects slowing in the economy.
For still more charts you can see our weekly collection of economic charts or download the Astor Economic Research App from the App Store. As always, we at Astor will be monitoring the economy closely to inform our investment decisions.
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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.