The US weekly indicator sets have been volatile but were basically flat over the first half of
2013. There was substantial improvement so far this year over the second half of 2012,
but the indicators leveled off after Jan. of this year. The stimulative effect of the big QE
program was offset by the effects of the 2% payroll tax increase, fiscal drag from the
sequestration budget trims and more conservative turns by banking and the business
sectors. Many economy watchers highlighted better housing and auto sales data, but total
US production was held nearly flat by the large export sales business which has yet to
progress this year in a marketplace of very sluggish global trade.
I like to watch new order rates from the manufacturing and services PMI reports. There
was nice improvement here from 6/12 through 2/13, with Feb. being a very strong month.
Since then, there has been a substantial downturn in new order rates for both the service
and manufacturing sectors on both domestic and exports categories.
From an indicator perspective, the evidence does not point to an acceleration of economic
or profits growth for the current third quarter. There are expectations the economy should
gradually improve as the negative effects of the payroll tax increase and fiscal spending
cuts abate over the next 12 - 18 months, and some folks see "trickle down" benefits from
the strong stock market and the recent sharp recovery of home prices. These are reasonable
expectations. However, because the economy responded so positively to the mere
announcement of the QE program after June of last year, it might be wise not to get too
far ahead of the narrative now that the Fed has surfaced the idea of curtailing QE not too
far down the road. This recent discussion of the issue has affected the capital markets and
it could have an impact on business planning as well.
- 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 !!!