Economic Conditions Snapshot for Q2

Remember how at the beginning of the first quarter, some economic advisors were shouting that the sky was falling, sell everything, and run for the hills? How are things shaping up? Was that warning warranted? Let’s take a look at the economic conditions of the first quarter and how the second quarter is shaping up.

One of the most important lessons about economics is to do your own work. Download the data, make your own charts, run your own analysis. Don’t rely solely on the words of pundits, especially if they have a vested economic interest of their own. Market bears tend to be resellers for gold; market bulls tend to be resellers for equities.

Let’s begin our review with the 1 year view of the Dow Jones Industrial Average:

Dow_Jones_Industrial_Average©_-_FRED_-_St__Louis_Fed.jpg

After a shaky start to Q4 and a very sharp selloff at the beginning of Q1, we appear to have regained territory. No cause for alarm here, and if you went contrarian and bought in January, chances are you’re felling really good right now. In the big picture, we’re still plateaued, but for now, things look reasonably good.

We see an identical bounce in the S&P 500:

S_P_500©_-_FRED_-_St__Louis_Fed.jpg

And the NASDAQ:

NASDAQ_Composite_Index©_-_FRED_-_St__Louis_Fed.jpg

Let’s check market volatility, via the Chicago Board Options Exchange VIX. The VIX measures how volatile the market is; the more volatile, the more unsettled investors feel.

CBOE_Volatility_Index__VIX©_-_FRED_-_St__Louis_Fed.jpg

We see the complementary pattern to the major indices above; while volatility is above mid-2015 levels, it’s significantly down from Q4 and early Q1. Overall, the stock markets appear to be in good shape.

Let’s turn our attention to the banking system. We check 30 and 90 day LIBOR, the London InterBank Offering Rate. The more risk in the economy, the higher LIBOR is. The higher LIBOR is, the less banks trust each other and the more they want to hold onto cash. Unlike the American stock markets, LIBOR takes into account global instability.

1-Month_London_Interbank_Offered_Rate__LIBOR___based_on_U_S__Dollar©_-_FRED_-_St__Louis_Fed.jpg

30 day LIBOR shot up at the end of Q4 and hasn’t come back down since, almost tripling. The same holds true for 90 day LIBOR:

3-Month_London_Interbank_Offered_Rate__LIBOR___based_on_U_S__Dollar©_-_FRED_-_St__Louis_Fed.jpg

Banks are feeling cautious. These levels aren’t nearly as high as during the Great Recession, but the rapid climb and steady plateau indicates a need for more safety on the part of banks lending cash to each other.

Let’s look at mortgages. How does the 30 year fixed rate mortgage rate look?

30-Year_Conventional_Mortgage_Rate©_-_FRED_-_St__Louis_Fed.jpg

Contrary to market predictions, interest rates fell again significantly, putting them down at near historic lows.

Have jobs recovered?

Total_unemployed__plus_all_marginally_attached_workers_plus_total_employed_part_time_for_economic_reasons_-_FRED_-_St__Louis_Fed.jpg

Despite the dire words of politicians on the campaign trail (everyone has an agenda and something to sell you), total underemployment is down to almost pre-Great Recession levels. This is all unemployed people, plus marginally attached workers (day labor, etc.) plus people working part time who used to work full time. The jobs number is a very strong number.

So we’ve got a bit of a mystery. The American economy as a whole appears to be stable and strong, with affordable mortgages, strong employment, and rising stock markets. Why are banks reluctant to part with cash?

The answer is: not because of America. Let’s look overseas at the MSCI Emerging Markets index, an aggregated index of the economies of 23 nations:

Featured_index_-_Emerging_markets_-_MSCI_q2.jpg

Here we see the same bounce as in the American markets (owing to the American economy’s outsized influence on the global economy). While rebounding, growth is still low.

The Baltic Dry Index also remains at near historic lows:

BDIY_Quote_-_Baltic_Dry_Index_-_Bloomberg_Markets_q2.jpg

BDI is the going cost of ocean-borne cargo container shipping rates. Unlike other indicators, it’s lagging; you don’t speculatively buy lots of cargo space you don’t need. Above, we see that companies are still not buying up shipping space; prices remain low.

How does everyone’s favorite shiny commodity, gold, look?

Gold_Fixing_Price_3_00_P_M___London_time__in_London_Bullion_Market__based_in_U_S__Dollars_-_FRED_-_St__Louis_Fed.jpg

Again, we see a flight to quality. Globally, investment in gold has pushed prices up significantly in the first quarter.

We know something is dampening the global economy. What? The OECD’s global consumer confidence levels finally tell the tale:

Leading_indicators_-_Consumer_confidence_index__CCI__-_OECD_Data_q2.jpg

While the OECD as a whole is down slightly in consumer confidence, what’s brought down the rest of the world is China. The People’s Republic of China is applying significant drag to the global economy.

How does this affect us?

For one thing, almost every American presidential candidate is making a lot of noise about the dire state of the American economy. The overall American economy is quite healthy, healthier than the rest of the planet.

For marketers, if you don’t have much global exposure to risk, the year appears to be turning around. Going into the second quarter, stock prices are rising, volatility is low, prices are relatively cheap, and consumer confidence in America is high.

B2C will see benefit first; consumer spending has to work its way up the supply chain before B2B sees the impact. That said, there is just cause for optimism for both B2B and B2C marketers.

Don’t buy into the self-serving lies of politicians and pundits with something to sell you. Right now, the macro economy looks fairly good.

Disclosure: I am invested in several funds as part of retirement planning, but do not track or purchase individual equities. I receive no compensation from any organization, category, or vendor in this post.


If you enjoyed this, please share it with your network!


Want to read more like this from ? Get updates here:

subscribe to my newsletter here


Marketing Blue Belt Preorder

Order your 2016 Marketing Planning Framework


Is business slowing down?

Is business slowing down? A handful of leading indicators may warrant concern.

A theme I’ve heard repeated in many different business conversations is that business is slowing down. Customers aren’t buying as much. Executives aren’t signing contracts. Sales prospects are stalling in the pipeline. Are there economic indicators which could explain this phenomenon? Or are these just anecdotes without a basis in data?

Three leading economic indicators worth paying attention to are the Baltic Dry Index (BDI), Initial Jobless Claims, and the Producer Price Index (PPI). These leading indicators can hint of troubles to come.

BDI tells us the price of shipping containers. If the price goes up, more companies are competing for shipping space. In turn, that means companies are producing more. As a rule, companies don’t buy shipping space speculatively, only when needed. If the price goes down, companies are shipping less, which also means they’re making less.

Initial Jobless Claims are a consumer leading indicator and a business leading indicator. More people laid off means more companies scaling back jobs.

Finally, PPI tells us how much companies are paying for their raw materials. If prices are going up, companies are making more stuff (and thus competing for commodities needed to make stuff). Conversely, a decrease in PPI means companies are buying less stuff and therefore making less stuff.

Combined, these indicators give a sense of the economy with regard to businesses. If all indicators are moving up, businesses are likely growing. If all indicators are moving down, businesses are uncertain or shrinking.

When we examine these indicators, we look at two lines: resistance and support. These are stock market terms; resistance means the recent top levels of any metric, while support means the recent bottom levels. Technical stock traders use these guidelines to determine whether a given metric’s behavior is anomalous or not.

Let’s take a look at the charts. First, BDI:

Resistance_and_support_-_BDIY_Quote_-_Baltic_Dry_Index_-_Bloomberg_Markets.jpg

Above, we see BDI has fallen through its support level. Already depressed, BDI has gone below support to a 5 year low. Companies are shipping less stuff.

Next, Initial Jobless Claims:

Resistance_and_Support_-_4-Week_Moving_Average_of_Initial_Claims_-_FRED_-_St__Louis_Fed.jpg

We see Initial Jobless Claims have broken through their resistance level, signifying that the overall 5 year trend may be reversing. Companies might be paring back jobs.

Finally, we look at PPI:

Producer_Price_Index_for_All_Commodities_-_FRED_-_St__Louis_Fed.jpg

PPI broke through a multiyear support level last year, but has declined below its 5 year support level at the end of 2015.

Any one of these indicators could be due to interfering environmental conditions. All three indicators show business conditions eroding.

Is business slowing down? In a nutshell: yes.

We must prepare accordingly.

Adjust our expectations for marketing’s ability to generate leads.
Expect a decline sales’ ability to close in shorter-than-average sales cycles.
Plan to increase spend on advertising just to maintain current levels of activity.

Tougher economic conditions mean stepping up our game as marketers.


If you enjoyed this, please share it with your network!


Want to read more like this from ? Get updates here:

subscribe to my newsletter here


Marketing Blue Belt Preorder

Order your 2016 Marketing Planning Framework


2016 Economic Conditions Snapshot: Don’t Panic

I shared the dire predictions of the Royal Bank of Scotland for 2016 recently; the TL;DR version was “panic, sell everything, and hide in your bunker“. Is their prediction warranted? Panic isn’t, but caution is.

One of the most important lessons about economics is to do your own work. Download the data, make your own charts, run your own analysis. Don’t rely solely on the words of pundits, especially if they have a vested economic interest of their own.

First, the Dow Jones Industrial Average, 10 year view:

10_year_DJIX.jpg

We’re looking like a top, a plateau. 2015 looks like an inflection point. Is a crash coming? Not super soon, but some losses are inevitable.

SP500_10_year.jpg

The same holds true for the S&P 500.

NASDAQ_10_year.jpg

Also true for the NASDAQ. 2015 looks like a top.

Let’s check market volatility, via the CBOE VIX. The VIX measures how volatile the market is; the more volatile, the more unsettled investors feel.

VIX_10_year.jpg

The second half of 2015 was rougher, to be sure. However, volatility still isn’t in Great Recession territory, though it is substantially higher than the past two years.

How is the banking ecosystem? We check 30 and 90 day LIBOR, the London InterBank Offering Rate. The more risk in the economy, the higher LIBOR is. The higher LIBOR is, the less banks trust each other and the more they want to hold onto cash.

2016_30_libor_usd.jpg

30 day LIBOR has ticked upwards noticeably after 4 years of calm conditions. Banks may see some short term risk, enough to consider stockpiling a bit of cash.

2016_90_libor.jpg

In the 90 day view, we see the same uptick. Banks are being more cautious about the first quarter of 2016.

Are either of these a cause for alarm? Not yet. While rates are ticking up, they’re nothing like they were during the previous bubble, shown just before the dark grey regions of the above two charts.

What about mortgages, the source of the previous economic crisis?

2016_30_year_fixed.jpg

30 year fixed rate mortgages remain at very low levels.

How about jobs? The best data source to look at is the alternative measures of underemployment, which takes into account not only people who are looking for work, but people working at less than full capacity (part time when they were full time), plus discouraged workers:

2016_unemployment.jpg

Overall underemployment looks good. The rate continues to steadily decline, though we might be seeing hints of a bottom.

Let’s turn our eyes overseas to the MSCI Emerging Markets index, an aggregated index of the economies of 23 nations:

MSCI_2016.jpg

MSCI has dropped 23% year over year, 32% off its 2015 high. This is noteworthy, indicating downward market pressures in emerging economies.

What about one of my former favorite indicators, the Baltic Dry Index (BDI)? BDI is the going cost of ocean-borne cargo container shipping rates. Unlike other indicators, it’s lagging; you don’t speculatively buy lots of cargo space you don’t need.

2016_BDI.jpg

BDI remains at crazy lows, indicating that shipping of goods by cargo container continues to be weak.

What about consumer confidence? The OECD assembles some terrific data on this front:

oecd conf.png

Overall consumer confidence around the world and the United States is optimistic; the one big question mark is China. China’s consumer confidence has swung wildly over the last 5 years.

Do businesses feel the same? The OECD’s business confidence index is the place to look:

oecd business confidence.png

Business confidence in the economy has been eroding in the United States, sharply in 2015. Businesses are not as optimistic as consumers.

What about spot gold prices? Gold is where a fair number of investors run in a panic when economic conditions become unsettled.

2016_gold.jpg

So far, investors haven’t panicked into gold. In fact, gold is at multi-year lows.

What about black gold, also known as oil? Oil is essentially a tax; the more expensive energy is, the less consumers and businesses have to spend on discretionary items.

2016_oil.jpg

Oil has fallen off a cliff in the last year. We know this as consumers because the price at the pump is at $2 a gallon or less in the United States. If you drive a car or incur other oil-related expenses, you know this by the extra cash in your wallet.

Finally, a roundup of agricultural products.

commodities.jpg

Most agricultural commodities are at multi-year lows except for rice. Low agricultural prices mean lower fuel and food costs, which is good for the consumer, but bad for some producers and farmers.

What does it all mean?

Panic isn’t warranted, but caution is. We see what look like market tops in the stock markets, slightly increased volatility, and the floor falling out from under several major commodities, from food to fuel to gold. It’s a tough time to be a commodity producer, but a generally good time to be a consumer. Businesses feel caution is warranted; the underlying fundamentals around commodities are deflationary.

For the B2C marketer and business, 2016 still appears to be strong for you. Consumers have cash in their pockets, they’re getting jobs, confidence is rising, and commodity prices (and their derivative goods) are low.

For the B2B marketer and business, 2016 is shaping up to be a tough year. When businesses become cautious, they tend to slow down capital expenditures and investments. Whether businesses pare back hiring is yet to be seen.

To sum, don’t panic. It’s not justified. Be cautious. Keep your eyes open.

Most of all, don’t believe the hype – ever. Use the data sources in this post to do your own analysis. Do your own work!


If you enjoyed this, please share it with your network!


Want to read more like this from ? Get updates here:

subscribe to my newsletter here


Marketing Blue Belt Preorder

Order your 2016 Marketing Planning Framework


mautic is open source marketing automation