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The Service Sector This metric dropped for the third month in a row and is clearly being affected by the negative news from the manufacturing sector. We can expect ongoing business and employment expansion, but the trend is now moving in the wrong direction. Strength in the service sector is consistent with business confidence; as a representative sample of the largest sector of business, this is an important leading indicator.

Private Employment: Annual Change Private employment growth year- on-year continued to decrease slightly, largely because of a weak January report, but remains at or above levels of the mid-2000s. Strong monthly figures at the end of 2015 suggest the decline may be stabilizing. Because this is an annual figure, the changes are slower and smaller than those we see in more frequently reported data, but the trend looks healthy.

Private Employment: Monthly Change These are the same numbers as in the previous chart, but on a month- to-month basis, which can provide a better short-term signal. January’s job creation was well below that of previous months. This is quite possibly a bit of giveback from previous strong monthly results and nothing to be too concerned about yet—particularly as longer-term employment growth remains at a level consistent with the mid-2000s. Total employment growth continues to be healthy.

Yield Curve (10-Year Less 3-Month Treasury) Rates for the 10-year Treasury ticked down over the past month while 3-month rates rose, and the spread between long-term and short-term rates dropped accordingly. Although it remains at healthy levels, the trend has changed from positive to negative over the past couple of months, suggesting this may be a fundamental negative shift.

Consumer Confidence: Annual Change Consumer confidence growth decreased again, taking the year- on-year growth rate below zero for the first time since early This metric suggests that consumers, the main driver of the economy, are starting to become concerned. Though the year-on-year growth rate remains well above problematic levels, a worry point may not be that far away.

Conclusion: Economy Stable, but Further Declines Could Signal Trouble With the exception of consumer confidence, all of the major signs continue to be positive. At the same time, all except employment show multi-month changes in trend downward. Employment is the most important of the indicators, but the consistent trend changes in other metrics may suggest we have moved into a significant slowdown. A slowdown is not a recession, which is why I’m leaving the overall indicator at a green light. With continued weakness, more yellow lights next month are a real possibility. On balance, however, we still have a green light for the economy as a whole, despite growing concerns.

Disclosure Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged, and investors cannot invest directly into an index. The information contained herein is provided for informational purposes only and is based upon sources believed to be reliable. No guarantee is made as to the completeness or accuracy of the information.