US Economic Outlook

The US hold on further economic recovery is tenuous at this point. There is enough residual monetary
liquidity in the system to underwrite further expansion, but the progress of the economy is near a
stall point, and without a dramatic announcement of additional easing by the Fed, a re-acceleration
of activity will depend greatly on whether consumer and business confidence might respond
positively to a narrow list of positives -- slight improvement in new order breadth indicators, a
larger than expected uptick in payroll employment and a decent rally over the past month in the
stock market. The Phila. Fed leading index shows the economy at a "fail safe" point wherein
additional loss of momentum might well signify a downturn: Philly Fed LEI Chart

My coincident economic indicators all point to a loss of momentum for the economy, but are
not flashing a sharp warning signal as yet. The yr/yr % growth of real retail sales dropped to a
low +2.5% in Jun. and further deterioration would be a very bad sign. Business has taken to
handing out very low pay increases again, and the recent pressure in fuel and food prices
will trim discretionary spending power unless confidence is there for folks to dip into savings
and increase the use of the credit card to finance stronger buying.