There are different sets of coincident indicators available, but I
prefer a stripped down version: real retail sales, production, civilian
employment and measures of the real wage. With two straight
months of gains in total civialian employment on the board, this
set of indicators is finally positive in all categories. Since the
household employment survey is more timely than payroll data, it
appears that payroll numbers will soon turn positive as well.
GDP data show that inventories have been liquidated for 7 straight
quarters and massively so. With sales now rising. production is
following more rapidly, and we should expect to see a positive turn
to inventory restocking which should have a significant plus effect
on GDP growth over the first couple of quarters of 2010.
Longer Term Fixed Investment
The capital stock is shrinking modestly, and as you would expect,
spending for new facilities is still falling. On the plus side, businesses
have turned to heavier investment in equipment and systems to
upgrade productivity of existing plant.
Residential construction remains depressed and is bottoming at best
and with idle space available after such a deep downturn, commercial
construction should remain subdued.
To summarise, the recovery is regaining balance, but a large
stock of unsold homes and slack in business operating rates will slow
progress in longer term fixed investment.
The leading indicator sets I follow have been in exceptionally strong
uptrends from very depressed levels for a year now. By my reading,
this suggests above average gains in real GDP out through the middle
of 2010. Since the uptrend in the indicators appears to be set to
moderate, it may well be that the progress of the economy will also
be more moderate over Half 2 '10 (not an unusual development).
The global indicators have not exhibited the strength seen in the US.
For example, there has been no increase in the % of companies with
a rising order book since 10/09, and the % of companies with
rising new orders has been quite moderate (53.6% global vs. 57.3%
US in Feb.).
The lack of a stronger rebound in many foreign economies has
been a cornerstone of the increase in investor concern re: sovereign
credit risk in that rising counter-recession fiscal spending has
exceeded the recovery of the revenue take.
- Peter Richardson
- 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 !!!