RPI Score Moves to 27 from 12
One of the major components of the RPI has recorded it’s 3rd negative month in a row. This has occurred three times in the last 15 years. Two of those occasions marked the beginning of market declines that ultimately became crashes.
The move above 20 creates a “Reduce Risk” signal for money I manage on behalf of clients.
My personal perspective is that this component will flip positive next month and that the other components of the RPI will not confirm the warning, sending the RPI back below 20. However, no one I can recall was calling for a recession and a market crash in February 2001 or January 2008 either.
The RPI is a tool I developed for measuring the strength of the American economy. It is derived from data provided by the Federal Reserve – things like CPI, GDP, productivity, employment, manufacturing activity, retail sales, etc.
Using a simple algorythm, the RPI scores the investment environment from 3 to 75. A score of 20 or above signals a rising likelihood of recession (usually bad for stocks). A move back below 20 after a recession signals a rising likelihood of favorable investment conditions. Most of the time it putters along between 3 and 17.
For a more detailed description and history of the RPI, take a look at the Recession Probability Indicator page under Monthly Features. It may be an eye-opener for you.