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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 !!!

Monday, October 10, 2011

Economic Indicators / Analysis

The weekly leading indicator sets remain in downtrends in force since last spring. The indicators
have been sound on inflection points in the economy, bur given their high volatility, they have not
been of much use when it comes to economic activity momentum. The monthly leading indicators
I follow show a downtrend in economic momentum, but do not yet suggest a recession is
developing. The monthly indicators have overstated the case for a broad economic recovery,
and this reflects the continuation of weak construction and labor markets.

I use monthly retail sales as something of a "halfway house" between the leading and coincident
indicators. Retail spending had shaky periods in both mid 2010 and mid 2011, but monthly data
remain in a firm uptrend so far.

The weekly coincident indicator I use has been flat since Apr. this year. The monthly data set
shows a deceleration of recovery momentum to low positive levels reflecting a moderation
of the rebounds in sales and production coupled with a continued weak labor market. The sharp
acceleration of inflation experienced over Half 1 2011 seriously undercut consumer purchasing
power and confidence.

With commodities prices having fallen sharply, particularly the important fuels sector, inflation
is set to moderate. This break is much needed to rescue the real wage which has fallen off over
the course of 2011. My economic power index is comprised of the yr /yr % changes in the real
wage and civilian employment. The current reading is a weak -1.0%. That is actually a decent improvement from Aug., but is very likely too low to sustain an economic recovery.
Without faster progress of employment and an improvement in the real wage, the economy is
set to languish as we enter 2012. For comparison purposes, a healthy power index is +4.0%.
We have not seen that for the US in nearly 5 years. 

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