Coincident Economic Indicators

Measured yr/yr, the recession deepend through Q1 ' 09 as the
decline in the CEI expanded to -5.6%. Real retail sales showed
a stabilization pattern over the quarter, but were still down 9.8%
yr/yr, as households continued to focus on rebuilding savings
and reducing debt.

Industrial production fell again in March and is now -12.8% yr/yr.
That is steep indeed. My rule of thumb for a depression is -15.0%,
so the US is nudging closer in my view. I use that rule because it
would take a good several years to make up the deficit in production
and because a 15% yr/yr drop has such negative implications for
profits and employment. Capacity expanded at only 0.5% yr/yr
through Mar. This reflects the steepening reduction of base capital
spending in the economy.

With retail sales more stable and production in a sharp decline,
business inventories are running off and physical working capital
is shrinking. So, pipelines are emptying out and as often happens
in such a situation, job losses have accelerated, with total employment
now down 3.5% yr/yr.

The income side is becoming more mixed. Per capita cash buying
power is as strong as it has been in many years. Total payroll (in
which I include unemployment benefits) remains positive but is
losing momentum. Moreover, the number of out-of-work folks
losing benfits is on the rise. On the plus side, new lower tax
withholding rates have just kicked in. In all, cash buying power
is still above water, and this factor continues to give the economy
a shot at recovery in the months ahead.

Now, we have pent up demand building for home sales, autos,
inventories and capital spending, with home sales and autos acute.
The factors to initiate recovery are in place and are visible.
What's needed, of course, is for consumers to begin to pick up the
pace of spending a bit, so that retail can start to move up from
stabilization.