Economic Indicators

The weekly leading indicator sets hit new cyclical lows and are
consistent with: a) development of a recession; and b) further
deterioration within a downturn.

The purchasing managers' index for new orders dropped sharply
in July and is now much closer to recession levels. The same is
true for the global PM composite. Even China's overall mfg. PM
reading fell below 50 in July (Olympics clean up?).

Underlying purchasing power within the US economy declined
to -1.8% yr/yr reflecting a falling real wage and lower total
civilian employment. When the tax rebates are added in, the
purchasing power measure improves markedly.

A strong export book plus rising public expenditures is continuing
to help the economy stay afloat. Momentum of global trade would
appear to be set to slow soon reflecting sharpened slowdowns in
domestic economies.

US manufacturers used the period of weaker order inflows to
work down backlogs and inventories and maintain high shipment
levels. Heavy inventory liquidation suppressed GDP. Backlogs
still remain elevated. Attention to working them down will
help shipments, but suppress capacity growth.

Clearly, the tax rebates are helping to sustain the economy
presently, and if these rebates do not spark more sustainable
growth, an extension may well be on the table for 2009.

The longer term leading indicators improved markedly as
July rolled on, reflecting a weakening in oil and gas prices. The
critical advance money liquidity indicators also improved, but
remain very modest.