Days ago, we wrote that the Citi U.S. Economic Surprise Index was "about to turn red" for the first time since last June.
The Citi US econ surprise index is about to turn red pic.twitter.com/B1JkaPp8k0— zerohedge (@zerohedge) May 19, 2021
As of Thursday, the index - which measures the degree to which economic data is either beating or missing economists' expectations - went red. The last time this happened was right around the time when lockdowns were ending in June 2020.
Besides a flurry of disappointing economic data points, including the recent hotter than expected CPI report, housing starts declined in April, and the Federal Reserve Bank of Philadelphia's manufacturing survey, which missed expectations, the surprise index dove into the red. The index is not an imperative measure of growth, but it does provide a view into the strength of the economic recovery.
Going red isn't a terrible thing for the surprise index, neither does it mean the recovery is falling off a cliff - all it suggests is that data points are no longer beating forecasters' estimates to the upside.
After more than a year of economic data surpassing economists' estimates following the Fed and federal government injecting trillions of dollars into the financial and real economies, the strength of the recovery appears to be slowing.
This also comes as many Federal Reserve participants suggested that if the economy continues to advance, upcoming meetings could involve taper talks or an adjustment of the asset purchases.
On Thursday, Dallas Fed President Robert Kaplan said he would like to see the central bank trim its $120bln asset purchases per month.
So the Fed communicating it may start tapering just as economic data points are no longer beating to the upside could be an ominous sign of trouble ahead, one where equity valuations might adjust for a slowing real economy (Powell get to work).