Both weekly and monthly leading indicator data sets continue to point to an improvement in
the pace of economic growth. There was a nice pick up in the October diffusion indices for
new orders which brings these important measures back up to satisfactory levels. The Bank
of Tokyo weekly coincident indicator, a conservative measure, remains flat as it has been
for several months. My monthly diffusion index for US output did improve in Oct. after
several months of decline. On balance, the indicators suggest the economy did progress in
Oct. there was also a pick up in global activity for the month.
My Economic Power Index -- 12 month % change in the real wage plus employment -- was
flat with the Sept. reading at a weakly positive 1.4%. This measure has improved well off
its cyclical low at 12/09, but it still makes for grim reading. The economy has made up well
less than half of the total job losses resulting from the recession, and employers are using a
still weak job market to hand out very small wage increases that utterly fail to compensate
employees for the large increase in productivity achieved in the recovery. Around here,
management of major companies are scoring large bonuses on sizable earnings increases
while handing out cheapo 1-2% wage increases to the rank and file. As a consequence,
the economy, although improving, remains vulnerable and unstable. Without faster real
wage and employment growth, consumption will remain very subdued unless people step
up on borrowing or cut savings, both of which they have so far been very reluctant to do.
The Fed is about to take action to improve the liquidity situation of the economy. This
measure may eventually lead to higher inflation. That does not present a problem for
economic supply / demand balance unless the real wage falters and people are again
thrown back to borrowing and dissaving to meet needs and wants. That would undercut
the chances for a return to greater prosperity.
From an editorial or value perspective, I say American business is failing to take care
of its people as the top guys pocket the dough. Over the long run, this kind of behavoir
will be revealed as a very destabilizing force, both on economic and socio - political
- 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 !!!