1.US business sales (including construction outlays) increased by an estimated 10.1% in 2011.
Profit margins expanded on continuing productivity gains and a positive spread of pricing
power over compensation costs. Profits likely rose close to 15%.
2. The momentum of global economic economic expansion slowed markedly over the course
of 2011 and the disappointing performance in offshore economies has resulted in the
reduction of both 2011 and 2012 earnings growth estimates for the SP500. Trends in
global production growth and trade continued to head south over most of 2011.
3. US Sales and production growth exceeded real household income growth by a significant margin
reflecting depressed real wages and modest employment growth. Stronger retail sales over
Half 2 '11 were financed primarily out of savings and a slight increase in borrowing. Fatter
profit margins for business have been coming at the expense of a weak labor market. This is a
destabilizing trend if it continues on.
4. US goods and services new order rates are improving and suggest a decently positive early
2012 for the economy. Growth visibility beyond the opening months of this year is low
because income growth continues to trail sales and output gains by a substantial margin.
Pressure on the real wage has been easing as inflation pressures have been moderating.
Note, however, the recent upturn in the gasoline price. $GASO Continuation of this trend
will annoy consumer confidence and pressure the real wage.
5. 2011 ended with a pick up in construction spending, particularly for housing and commercial.
That's a nice positive, especially since construction jobs can pay well. But, we'll have to
watch the US exports picture with foreign economies losing momentum and the US dollar on
the rise.
6. My main concerns now for this year are the weak US real wage and declining growth in the
world exc. the US.
For an interesting stab at a real time business conditions index from the Philly Fed, go here.
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