The weekly leadings lost a little ground in recent weeks but remain
in strong uptrends. There were negative short term reversals in
unemployment insurance claims, sensitive materials prices and the
stock market. My reading of the weekly indicators is that they are
probably due to come off the powerful trajectories they have been
on. However, there has yet to be a break in % momentum of the
indicators when viewed yr/yr.
The monthly indicators -- heavily weighted to new orders -- did
hit a new cyclical high in Jan. Momentum here is strong but is
slowing. The services sector is on a moderate track and trails the
strong manufacturing sector by a significant margin. (The services
sector did not experience the inventory liquidation led free fall seen
in manufacturing over H 2 ' 08.)
Key $ Series
Retail sales, production in $, new factory orders, spending for
capital equipment and tech. and exports are also advancing with
exports the clear leader. Housing remains in the doldrums with
only a hint that new purchase mortgage applications could finally
be bottoming after a 50% decline over the past five years. Profits,
as mentioned yesterday, are also recovering rapidly.
Business Strength Index
This index has improved rapidly over the past year and now
stands at 130.6. The Fed normally raises short term rates when
the index breaks through 130 and gets into the 130 - 140 range.
An issue here is that capacity utilization is still low. Moreover, the
capital stock is now shrinking. If policy is for exports to be a
leader for the US as Pres. Obama insists, the Fed will have to be
even more mindful of operating rates going forward. After a boom
in the 1990's, the US is due for a new round of greenfield expansion
to put more productive equipment on line if it is to stay competitive
down the road.
Economic Power Index
This index gives a quick look at underlying consumer purchasing
power. Persistent decay over 2007 - mid-2008 helped underwite
the deep recession. When inflation fell away in latter 2008, a large
spurt up in the real wage saved the US from an even deeper
downturn. The index lost ground again over Half 2 '09, but did
improve sharply in Jan. as the real wage held up better, and as
total civilian employment increased. further improvement will
be needed over 2010 to secure continued economic recovery.
Capital Slack Index
This measure is improving from the lowest levels seen since the
end of WW2. With slack this ample, the odds favor a lengthy
period of economic recovery / expansion that could easily run
out to 2016 or longer before full tilt is hit.
The rest of the world went off the economic cliff with the US over
Half 2 ' 08. Global recovery is underway, but its momentum, when
measured in new orders data, has leveled off. I would have to say
this is a disappointing development as weaker foreign credits like
Greece and Spain need to see rising business and household cash
flows to buttress their revenue take.
Dragon Has Hoarded Materials
With official China now signalling that a touch of moderation of its
aggressive monetary policy may be in order, inventory speculation
by China companies may be easing . Check out copper.
- 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 !!!