Business sector growth moderated in recent months, but it sustained
a solid expansion through July.
I use four sets of leading economic indicators. They all point to a
further slowing of economic growth ahead but are not in all
sufficiently weak to signal an economic downturn of consequence.
Some of the indicators have been unusually volatile owing to marked
swings in sensitive materials prices which experience seasonal
weakness during mid year.
My long term indicators are positive but are eroding as a result of
a substantial loss of growth momentum of monetary liquidity
measures. Normally, this would not be a worry in the earlier stage
of an economic recovery because it is then when private sector credit
growth begins to accelerate. The latter has yet to occur, so the
economy has to be seen as at increasing risk down the road until
there is more money / credit in play. I am more quizzical than bearish
or bullish about the liquidity issue at this point.
I also wanted to mention my economic power index, which
measures the yr/yr % change of the real wage plus civilian jobs.
+4.0% would be a good vibrant number for this index. It is now
at +0.4%, indicating only rather modest purchasing power for the
large household sector.
Revised data show the consumer to be even more eager to rebuild
liquid savings to go along with a reluctance to take on more debt.
Companies are very leery to hire and are squeezing the hell out of
the work force for every last nickel of profit margin. The banks are
tightfisted. So we are moving from a spendthrift economy to a
tightwad economy and the US needs to regain balance quickly before
it moves more fully from one mode of dysfunction to another with
potentially disastrous results.
The US economy one year into recovery is operating well below
prior peak when critical categories such as retail sales, production
and capacity utilization, construction and employment are considered.
This has all followed a frightening economic free fall experienced
over Half 2 '08 and early 2009. There has been genuine financial
impairment, a loss of confidence and a sizable further loss of trust in
governmental authorities. But, folks need to accept risk to move the
economy toward better balance despite the disappointments of
the past several years.
I am cheering hard for a return to more balanced growth, but my
money is now resting on the sidelines (See prior post).
- 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 !!!