Monday, April 22, 2013

U.S. retail economy slipping

A couple of weeks ago we examined the New Economy Index (NEI) and noticed some weakness.  The index provides us with a real-time picture of the overall health of the U.S. retail/consumer economy.  NEI was verging on a sell signal but had not quite broken the uptrend.  While the interim uptrend still hasn’t been broken, it’s now one step closer to breaking after the latest update to the index.

You’ll notice that as of April 19 the index has violated both its 12-week and 20-week moving averages.  This doesn’t technically qualify as a break of the uptrend that has been intact for the past few years, but if NEI violates the nearest pivotal low we’ll have our first economic “sell” signal since spring 2010 (see dashed line in chart below).

The implication behind the recent weakness in the NEI is that the U.S. retail economy is slipping.  This can be seen in the stock price performance of leading business shipper FedEx (FDX), which is a component of the NEI.  FedEx is an important business indicator, and a sliding stock price for FDX suggests demand is diminishing.

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