As discussed previously, global leading economic indicators did
flatten out over the 9/09 - 2/10 period following rapid recovery
earlier last year. This was true of the eurozone and no doubt added
to creditor concerns regarding the weaker links such as Greece. The
good news is that there has been substantial improvement in more
recent months both in the eurozone and around the globe.
US weekly leading indicators have regained positive momentum
after a Jan. - Feb. '10 dip. US monthly leaders also remain strong.
The improvement in the breadth of new orders has been steady
enough, and although high, remains below record levels. The $ trend
of new orders has also accelerated sharply off the low early 2009
Yr/yr % momentum of the leading indicators may be peaking now,
but momentum has been unusually strong and signals good growth
in output and profits through Aug. '10.
My Economic Power Index is now showing recovery again. The
yr/yr change in the real wage has flattened out but is holding up
better than earlier expected, and the yr/yr change in employment,
although still negative is improving rapidly. The index looks set to
break out of a broad three year downtrend in the months ahead.
At this juncture the continuing expansion in jobs held is necessary
to sustain consumer confidence and spending. Internet job listings
have jumped in recent months and have reversed a steep downtrend
in place since late 2007.
The Business Strength Index has recovered enough to signal
that the Fed should raise short rates. However, the capacity
utilization component is still low by the Fed's reckoning, and there
has also yet to be a decisive turn in short term business credit
demand (The re-activation of swap agreements between the Fed
and Europe's central banks could also affect US monetary policy
in the short run).
There remains large slack in the US economic system and this
now includes banking system liquidity. Thus, the economic
recovery continues to have the potential to be a lengthy one.
- 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 !!!