Economic & Profits Indicators

Weekly leading indicators have recently stabilized after a
sudden and wrenching downturn running through May and mid-
June. But there has been an unmistakable signal that slowing
of recovery progress lies ahead. Monthly leading indicators also
signal a slowdown, but have held up better than the weeklies. The
recovery surge in the monthly indicators from early 2009 was not
exceptional at all, while the lift off in the weeklies was the strongest
in the modern era. When the weeklies such as the ECRI set are
viewed in the context of the first 24 months of recovery, the recent
weakness brings them down to average from super-strong. the
weeklies in the US line up best with the powerful recovery of
export sales and factory orders and less so compared to the broader
economy.

My economic power index, which focuses on the real wage and
the change of total employment, has been slow to recover. The
real wage, measured yr/yr is flat. This reflects weak labor market
conditions, but it also continues a trend of business to not reward
labor for productivity improvement but to let rewards flow entirely
to capital instead. Investors applaud the practice on an individual
company level, but, when seen in the aggregate, it undermines the
purchasing power of the economy and leads to a reduction in the
efficiency of $ capital. The index results also show companies have
been slow to rehire, preferring to "milk" current operations as
fully as possible. The salutary here for workers is that real take
home pay is up 1.6% yr/yr entirely as a result of more hours
worked plus OT.

The slow recovery of the EPI coupled with wage earner attempts
to replenish savings and avoid dipping into credit has created an
environment that supports modest and not robust economic
progress.

Profits indicators were very strong through the first five
months of 2010, but they did moderate in June, and the leading
indicators now suggest further moderation as the year progresses.
My long term leading economic indicators were the
strongest ever at the end of 2008. The indicators have lost
strength since then but remain positive and continue to support
economic and profits recovery through 2011. However, I am
concerned that the Fed not be asleep at the switch and that It
will be prepared to provide additional monetary liquidity to the
system if private sector credit demand -- now basing -- does not
show decent lift by this year's end.