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Yellen’s Dashboard – Update

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Another quarter has come, and it arrived with good news on jobs. The stock market didn’t tank right away, but most investors agree that the daze of puffed-up valuations for everyone are over. The consensus seems to be that rather than a general fall, investors will have to be more selective and careful. This is consistent with an economy that is changing and gradually turning over, ahead of the next Big Thing that will propel a real bull market in coming years.

But where do we stand with respect to Yellen’s Dashboard – those key economic indicators that Fed Chair Yellen said she’d be watching for movement where there has been so little over the past few years? We don’t have all the data to fill in where 3Q14 stands, but we have most of it. And it all looks good. Which is to say bad, if you’re so minded, because it really does look like the Fed is going to raise rates.

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Pop!

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The big test for the stock market comes with the release of unemployment figures, which probably has already occurred if you are reading this after 3 October. If unemployment comes in at better than last month’s 6.1%, what is also expected this month, there will be a serious problem for the stock market.

How is that? Do rich people only prosper when the working stiffs are suffering? The short answer is “no”, but the long answer is “yes”. It shouldn’t be set up that way, but the fragile bubble at the end of a 3 year long expansion in the S&P500 is kept aloft partly by Fed Action – and that comes to a halt as good news trickles in.

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Industrial Capacity is Back

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When looking for economic data that tells us all how we’re all doin’, sometimes you just can’t beat the classics.

Long ago, the US was a nation that made stuff. Economic expansions or contractions could be measured by industrial output with a rather high degree of precision. Lower output meant that people were losing their jobs and the nation was slowing down.

The industrial capacity figure hasn’t been used much lately because we don’t rely on manufacturing for the bulk of the jobs anymore. At about 12M jobs, it’s just over 10% of all employment. But it still means a lot, and the results are encouraging.

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No Longer Driven by Oil

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A new international war has started in the Middle East as Syria continues to burn. Russia is slowly being strangled by international sanctions that are now cutting off their ability to produce and sell oil. With all of this happening in the world, something remarkable is happening to the price of oil – it’s dropping.

How could this happen? The short answer is that the US continues to move towards energy independence, producing its own oil while consumption is stagnant. It’s a good thing, all in all, but it means that the environmental degradation that was once found only in distant lands, and conveniently ignored by nearly everyone in the US, is now upon us. What can we do?

There’s a decent chance that the free market will actually sort it all out – once it’s been properly regulated to account for the environmental damage, that is.

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Job Loss Hits a Milestone

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Of all the various measures of the economy we have at our disposal, one of the most consistent and real-time is the Unemployment Initial Claims, which comes out weekly. It’s nothing more than a measure of how many people filed for unemployment insurance in the previous week, so it’s a solid number that doesn’t come from a survey or other statistical measure.

It still has its problems, however. It’s noisy, bouncing up and down a bit each week – a problem taken care of by looking at a 4-week moving average. Initial Claims numbers also don’t tell us a thing about hiring, but rather how many lost their jobs.

It hasn’t been useful for at least two years as attention turned away from job loss to job creation that would absorb the surplus workers looking for employment. But it’s worth checking in with this handy number one more time because it has hit an important milestone – and may be as low as it will ever go.

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