Economic Indicators / Analysis

Weekly Leading
Strong positive momentum ended in 3/11. Bad winter weather may have shifted some of recovery
from Q 1 to Q 2 '11, but indicators suggest slower growth to resume in Q3.

Monthly Leading
Primary business sector new orders index still is running fairly strong, but it has slipped from
powerful levels seen earlier in the year. Suggests slower economic pace by Q3.

Global Monthly Leading
The index is slowing sharply from strong levels seen in late 2010 / early 2011. The fast moderation
here reflects a loss of US new order momentum plus the widely expected weakness in Japan
in the wake of the EQ / Tsunami.

Inflation Leading
Rapid decline of commodities prices including important fuels sector in past week takes some
significant steam out of inflation potential.

Long Term Leading
The positive but moderating trend to get a lift from the recent rapid ebbing of prospective inflation.  The latter will benefit real wage and transfer payments. However, the long lead indicator will experience
further moderation going into Q3 '11 as QE 2 comes to an end and monetary liquidity begins
to flatten out. This will not create a problem for the economy if still very sluggish private sector
credit demand finally picks up steam and fully offsets the end of QE 2. For now, dependence on
QE 2 still remains important.

Economic Power Index (EPI)
Holding aside the 2% positve from lower FICA taxes to wages, the EPI is just marginally
positve and is insufficient to warrant confidence the recovery is becoming self sustaining.
Excluding temporary benefits such as the FICA cut, both real wages and employment growth
remain too slow measured yr/yr.

Conclusion
Q2 '11 pace of recovery may be solid enough, but the leading indicators point to moderation of
progress afterward. The US is nearly two full years into an economic recovery, and the case has
yet to be made that it can sustain without a very accomodative monetary policy as well as
direct fiscal stimulus.