U.S. Equity And Economic Review; Good Economic But Weaker Technical Environment

US economic news was strong. The Fed raised rates (see the bond market review for detailed analysis), indicating their confidence in the economic environment. Both LEIs and CEIs increased; the former rose smartly, while the later are a bit weak thanks to the shallow industrial recession. Housing starts and permits also rebounded. The markets, however, are weakening. The SPYs are fluctuating around the 200 day EMA; the IYTs are flirting with 1-year lows and the IWMs are 2.5% below their 200 day EMA. The QQQs are the only average in relatively strong technical shape. But the breadth of overall weakness indicates their most likely move is slightly lower.    

LEIs increased .4%.  They have increased strongly in 4 of the last 6 months.  CEIs, while increasing, are rising at a slower pace:

While new industrial orders continue their weakness, new building permits and interest rates remain strong contributors to the LEIs:

Industrial production is clearly the primary reason for weaker CEI readings; it has only been a strong contributor in 1 of the last 6 months:

The LEIs and CEIs remain useful statistics for two reason: they combine a large amount of important information into a single useable number and they have a history of being right.  The latest reading points to continued weaker growth thanks to industrial weakness.

Industrial production decreased .6%.  Three events are contributing to the weakness:

Manufacturing is “the weakest sector of the economy right now — it’s getting hit by the strong dollar, lower energy prices, and now by the weather,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. Factory output “ultimately is 12 percent of GDP, so the question is what will happen to the other 88 percent. There, the news is still pretty good.”

The following table from the Fed report shows the breadth of the problem:

Final products, non-industrial supplies and materials were all anemic. Mining and now utilities are also fragile. Some market participants are describing the situation as an industrial recession: