Coincident Economic Indicators
Measured yr/yr, my favorites -- industrial output, real retail sales, growth of civilian
employment and real take home pay -- improved further in Dec. to 1.7% from the
recovery low point of 1.0% in Jul. The US economy is still well below the 3.0% yr/yr
reading which signals solid well balanced growth, but we are moving in the right direction.
Growth of employment and real take home pay are inching higher but are still drags on
the economy with both needing to strengthen to underwrite decent sales and production
growth without over - reliance on credit.
Corporate Profits Indicators
The $value of industrial output measured yr/yr continues to rise and hit 5.3% in Dec. com-
pared to modest readings of 3.0% back in Apr. and May. In this era of mild inflation, 5%
growth in $ output is usually necessary to have a shot at maintaining business sector profit
margin. My selling price / cost measure was still negative for business, but offsets arrived
via higher operating rates and an uptick in productivity late in the year. I continue to look
for the $value of industrial output to rise to 6.0 - 6.5% by late 2014, a development that
would signal faster profits growth.
Faster business sector growth currently matches private sector liquidity growth. With the
economy taking up liquidity from the private banking system, generation of excess liquidity
must come from the Fed's QE program if there is to be further strong liquidity support for
the capital markets.
Note as well that since Fed QE programs and strong liquidity preference led to extraordinary
growth in M - 1 (cash and checkables) of 24.7% yr/yr by Oct. 2011, the momentum of M-1
growth has declined sharply to 8% yr/yr as the economy has expanded. With continued
economic progress, M - 1 growth may well decline further, leaving the banking system the
burden of pursuing more deposits and generating more loans to help finance the economy.
The situation is ok for now, but the banks will eventually have to step up and take more
- 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 !!!