Coincident Economic Indicator
Measured yr/yr, my coincident indicator is up a paltry 1.2% and remains in a downtrend
which began in early 2010. Surely, the bad winter weather over the eastern two / thirds of
the country into early Mar. punished economic performance, but the continuing lack of
even moderate real income growth remains a drag factor as it has since the inception of
the economic recovery. The US has also experienced a slowing of its export growth in
recent months, which may be more fully explained by the weather.
As the US moves into springtime, the expectation is that there will be faster economic
growth as winter loses its icy grip, but unless businesses pick up the pace of hiring and
start paying better, the economy will struggle to escape the low growth mode.
Business Profits
The economy did experience stronger production in the final quarter of 2013 and even
though pricing power remained rather subdued, profits performed well. Measured yr/yr,
business sales have been sluggish so far in 2014, and with little pricing power, operating
margins (excluding per share indexation from stock buybacks) were probably under some
mild pressure. Since the month is not done yet, maybe business activity will pick up in
the relative absence of severe cold and storms and save the quarter from sluggish readings.
Banking System Credit
Over the past three months, the banks have stepped up lending to a nearly 8% annualized
rate of growth. So if the tough winter has pinched business cash flows, banks have been
willing to step up and meet credit needs. We need to see much more of this if the economy
is to do well as the Fed tapers the QE program
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