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What to Make of the Mixed Economic Data

economic data

In a recent article I pointed out that market volatility is most likely here to stay. That can make investors uncomfortable with sharp day to day swings in either direction.

The reason is simple: The mixed bag of economic data out recently has both professional and retail investors scratching their heads about the market’s next big move.

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Analysts at Oxford Economics came up with a new Recovery Tracker index designed to measure how well our economy is bouncing back from the coronavirus crash. The good news among recent data can be seen in the graph below.

economic data

In spite of the unprecedented sudden-stop to our economy in March, the recovery tracker index shows a strong, persistent rebound in economic activity across various sectors including financial conditions, production, consumer demand and more.

In fact, at the current rate of recovery, the U.S. economy could be back to pre-crisis levels within a matter of a few months.

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Now for the bad news . . .

The heart of our economy is American consumer spending, which accounts for about 70% of US GDP growth each year. Retail sales data have been mixed recently because unfortunately, millions of Americans remain out of work right now. That makes it difficult to spend freely.

economic data

Above you can see initial claims (blue line) and continuing claims (yellow) for U.S. unemployment benefits. Initial claims spiked dramatically in March-April, but have been coming down week after week, which is good news. Fewer new claims mean fewer layoffs.

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The bad news is the yellow line. It represents continuing unemployment claims, which are declining much more slowly. In fact, 20.5 million Americans are still collecting unemployment benefits, according to the latest data. That’s a high and troubling number.

Bottom line: The economy is sending mixed signals. Some data has improved dramatically, a positive. Meanwhile, other data, like unemployment claims, remain a big negative. That’s why markets are likely to stay volatile until there is more clarity.

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Good investing,

Mike Burnick

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