Economic & Profits Indicators

Coincident Economic Indicator (CEI)
When my CEI hits 3% yr/yr, it usually shows moderate growth with a reasonable balance
between output and income. For all of 2013, the CEI averaged a paltry +1.3%. the average so
far for this year through April is +1.6% for a modest improvement. The most distressing factor
last year was the poor performance in the real wage. This year's tough winter weather
notwithstanding, I think the cumulative effect of a depressed real wage last year has led to a
deceleration of real retail sales this year which has been a drag on the performance of the CEI
for 2014 to date. As well, the momentum in the growth of civilian employment was low in
2013 and this also contributed to a lack of progress in aggregate spending power.

This year the real wage has done better as has employment growth, so the potential to see the
CEI pick up in growth somewhat is there. However, businesses are still not doing the hiring
and paying well enough to get the economy on a more substantial and sustainable footing.

Business Profits
S&P 500 net per share rose about  2-3% yr / yr in Q1 '14. With unseasonably cold weather in play,
utilities led the way. My US sales proxy increased by 4.5% for the quarter, and experience shows
with that kind of modest growth, it is tough to maintain profit margins before the beneficial
effects of share buybacks. Pricing power was again subdued and the price / cost ratio likely
retreated. On the plus side, April may have been the best month so far in 2014 on a yr/yr basis.

Looking back at late 2013, analysts were expecting SP 500 earnings per share to rise by at
least 10%. We are going to have to see much better operating performance from here to
reach 10% or better profit growth.