Economy & Stock Market

My leading economic indicator composite fell sharply in
August after rising significantly over the first seven
months of the year. It signals possibly sharp moderation
of growth in the months ahead. There are no recession
warnings yet.

The BLS household survey of civilian employment, the
broadest and most current measure of jobs, shows no growth
of employment in the US for the year to date. Measured
yr/yr, civilian employment growth has decelerated from 2.0%
early in 2007 to 0.8% through August. Real wages are up
about 1.5% yr/yr through August. The combination of real
wage and jobs growth is 2.3%. This is a modest but not yet
perilous level. It does contrast sharply with the comparable
3.9% level seen early in the year, and is moving in the wrong
direction from a growth perspective. The subdued jobs data
seems out of synch with a rising level of corporate profits,
and I am not confident I fully understand it.

Headlines notwithstanding, the US banking system seems to be
functioning normally. C&I loans continue to trend up and
the real estate book has even inched up a little recently.
Part of the rise in C&I loans is however likely attributable
to deals stuck in the pipeline.

The change in inventory levels, which was strongly positive over
the second half of 2006, has been quite trim over the first half
of this year, a favorable development.

The economy is not on thin ice yet. The problem of course is that
thin ice comes along quickly, especially when liquidity flattens
out the way it did in August. As Mr. Bernanke recently said,
uncertainty is deeper in the short run.

The stock market seems almost haplessly unstable as investors and
traders try to handicap the economic outlook. The US economy is
the largest, and it is deeply diversified and stable. It is now
under stress from sizable pockets of disorder in the financial
markets. It would be nice to say something more positive than
"keep an eagle eye on it", but sometimes you have to suck it up
and go along until matters clear a little.