US Economy
Measured yr/yr, my coincident economic indicator set was up just 1%, held down by
further deceleration of real retail sales, weak real take home pay and yr/yr growth of
civilian employment by just 0.9%. Industrial output was the one bright spot and that
was powered by higher electricity generation needed for cold weather. With the further
slowing of retail sales, industrial production could be curtailed in the future if inventory
adjustmetns are needed. Underlying economic purchasing power has declined on slow
employment growth and weak earnings. Consumers are going to need to borrow more this
year and / or drain savings to maintain modest retail sales growth. Home construction is
a bright spot but remains low. The much larger export sales sector has improved modestly
recently, but is not much higher than a year ago. Overall, the economy is sluggish and lacks
balance.
Financial System Liquidity
The Fed continues with its major QE program, and that's a good thing since the broader
measure of financial liquidity or funding has actually declined over the past two months
as the banks have adequate deposits and continue to prefer building capital and liquidity.
Total interest earning assets for the banking system are up a mere 4.4% yr/yr and total
loan demand is up even less at 4.1%. The banking system is drifting back to join
corporate business as a drag factor on real economic progress.
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