We’ve recently seen a slowing pace of growth, large downward revisions to the pace of U.S. job growth and an ISM service sector reading that suggests this critical part of the economy is nearing stall speed.
Put them all together, they imply a possible economic turning point in the business cycle.
If that is the case, one should expect an increase in a series of forecasts of major economic releases to begin surprising to the downside.
One useful way to measure this idea is the Citi Economic Surprise Index, a quantitative metric that tracks how actual economic releases arrive compared to market expectations.
According to most observers of economic surprise indices, including the Federal Reserve Board, a positive reading of a surprise index suggests that economic releases on balance have been higher than consensus—which implies that economists are underestimating the strength of…
