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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, August 07, 2009

Economic Indicators

Leading Indicators
The data, both weekly and monthly, continue to trend strongly
upward from the deeply depressed levels of late 2008 - early
2009. The data suggest the US economy is closing in fast on
expansion, with the global economy moving in a likewise fashion.
The same may be said for profits recovery. The volatility of the
indicators remains remarkable. My new orders diffusion index
suggests an expanding book of mfg / commercial business at 100.
It fell from 103.3 in 5/08 to a startingly low 73.8 in 2/09, but has
since bounced back up to 103.4 for July. The weekly and monthly
leading indicators are just now starting to show positive trend

Economic Power Index
This somewhat longer term index foreshadowed significant
recession by falling from 4.0% (yr/yr) to -2.5% by 8/08. The
index then rallied sharply through year end on a powerful rise of
the real wage as hourly rates kept rising while inflation fell quickly
away. This exceptionally positive development did portend
eventual economic recovery in the US, which I hope is at hand.
However, as I have warned, the growth of wages in current $ is
slowing with growing slack in employment, and the power
index will falter more later in this year if the real wage erodes as
expected and if the drag effect of job loss momentum does not
abate. As of now, job loss momentum, measured month-to-month,
is quickly easing so that the yr/yr measure may soon show some
improvement from the current sharply negative -3.8%.

There are current offsets -- higher social security payout, tax cuts,
unemployment insurance and the ramp up of federal spending for
projects. Consumers also have the option to finance more of their
spending. However, over time, low or no real wage growth coupled
with a weak job market will not sustain economic expansion.

Inflation Indicators
The inflation pressure gauges I use have stopped signaling deflation.
These measures have turned up, and now suggest a return to mild
inflation (measured yr/yr) by late 2009. This development
underscores the need to see the monthly rate of job losses continue
to be cut very quickly as the year progresses.

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