Economic Indicators / Analysis

Weekly and available monthly leading economic indicators are giving early, preliminary
indications that the momentum of the advance in the indicators may be leveling off. More data
observations will be needed in the weeks ahead to confirm whether such is truly the case.

The Economic Power Index (EPI), when left au natural or unadjusted, remains weak. This index
combines the yr/yr % changes in the real wage and total civilian employment. Through Mar. 2011,
it stands at a mere 0.6% and reflects pressure on the real wage and continued sluggish employment
growth. A strong EPI reading would be on the order of 4.0%. When we toss in the cut in the FICA
tax and overtime hours, the EPI reads 3.6%, but the index will lose more than half of this reading
next year even assuming that the FICA cut stays in place. So, the EPI is for now artificially strong
and the unadjusted index is awfully low for this stage of an economic recovery. To get a more
sustainably strong EPI, we need to see an improving real wage and much faster employment
growth.

In what I hope will not turn out to be a piggy move, the current $ hourly wage was actually cut
slightly in Mar. as no doubt a few businesses figured they could trim the wage now that workers
have the FICA cut in hand.

I would also call attention to how businesses may be factoring leading indicators data into their
planning. Last spring, when the leading indicators started to flatten out, jobs were quickly cut
and employment did not reach a new cyclical high until Feb. this year. If such caution continues,
hiring plans may be crimped again if the indicators slow down as happened last year.

Now, I have to confess that the way I compute labor productivity shows that although per worker
output has increased markedly off trough levels seen in 2009, it has just begun to surpass levels
seen back in 2008, before the economic free fall started, so I have to temper my contempt for
how employers have treated the rank and file compensation-wise in recent years.

I have said next to nothing about the construction markets over the past 3-4 years. I have not liked
the fundamentals in this business for some years. However, the industry is in a full fledged
depression, one that has lasted as long as I thought it would, but which has declined far more
and which has cut more deeply into the economy than I ever imagined it would. It proves the
old adage that when you are early to see things will turn bad, they still turn out worse than even
you thought they might.

But, it is probably time to dust off the fundamentals for these markets. After all, at its peak, it
was a $1.2 tril. industry.