My leading economic indicator composite continues in a
downtrend. It has not fallen far enough to signal the
advent of an economic downturn, but unless the composite
stabilizes soon, we'll have to entertain that idea in Q1
'08. Significant declines in this indicator gave false
downturn signals twice over the past 50 years -- 1987 and
1998 -- which, interestingly, were both periods of turmoil
in the financial and capital markets. So, one can still
get a recession signal and have it backfire if unsettled
financial conditions return to stability in a timely
enough fashion. Frustrating? Well, remember Aristotle's
reminder not to demand more perfection from a subject than
it admits of.
Yr/Yr employment growth continues at a paltry 0.5% and the
real wage continues to grow below 1.0%. These conditions
reinforce a very sluggish economy.
My long lead economic indicators do not present a pretty
picture either. Continued low real growth of Federal Reserve
Bank Credit and weak real M-1 have implied economic
vulnerability the moment credit driven liquidity slackened,
which it has in dramatic fashion since July. The real oil
price continues to rise, punishing broader consumption, and
capacity utilization has lost its uptrend. The bright spot
is that short rates are trending lower. Moreover, the Fed
has stepped up the buying of securities, but we'll have to
wait a month or two to see if this is other than a temporary
seasonal push.
The SP500 market Tracker continues to slip, and is now assigning
fair value for the "500" in a range of 1460 - 1500. Analysts
continue to chip away at earnings estimates, and the pace of
inflation measured yr/yr has accelerated. Thus, both earnings
and the p/e are under pressure.
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