Coincident Economic Indicators

Paced by gains in retail sales, production and export sales, the US economy finished up 2010
on a stronger note than seemed likely at mid year in the midst of a brief but sudden, sharp
slowdown.

Measured yr/yr, output only indicators were up by around 4%. Gains in business sales and
production were strong at about 7% in real terms. The big offset continued to be the construction
markets, with new building activity down 20% from a depressed 2009 level despite some
improvement as 2010 progressed.

When the indicators are broadened out to include income and employment measures, then the
various coincidental activity composites drop to a +3% for the year on slow wage and real
earnings growth.

Monthly and weekly economic data do highlight an imbalance between the output and income
sides of the economy. The cut in the payroll tax and more stimulus goodies for businesses are
designed to boost the income side of the economy in 2011 with the expectation by policymakers
that stronger income growth will sustain moderate output growth.
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Political Note: 'Tis true voters harbor deep anger and distrust of government after the economic /
financial disasters of 2008 - early 2009. But even more, there is anxiety about the future, and
most specifically about whether the jobs market will improve enough to support continued
economic recovery and further increments in home values. Since the campaigns for the Presidency
and the Congress in 2012 are already underway, politics in Washington will be judged strongly
by whether actions taken add to or diminish jobs growth prospects. The smarter course for the
Dems and the GOP would be to take bi-partisan steps as needed to better the employment
situation and let the battles for office be fought over other issues. I would not be surprised to
see grudging cooperation about growing employment and addressing the risks to the economy
from a still rising home forclosure rate. After all, the elections of 2006, 08 and 10 show that
loyalty is zilch for many voters. Since the states and municipalities are boxed in to greater
austerity by statute, it is the feds who will have to carry the ball.