Economic & Profits Indicators

Coincident Economic Indicator
My CEI rose by 2% yr/yr again in Jun. This has the broad economy running at roughly  2/3
speed. Industrial production growth, paced by oil and gas output, was the strongest component
followed by real retail sales at 2.3%. Measured yr/yr civilian employment growth remains at a
mild level, rising 1.5%. Real wage growth again declined as senior managements pay themselves
royally and leave table crumbs for the rest of the workforce. With banks now lending, it is the
greed of business at the pay window along with significant fiscal drag that keeps the economy
below its potential.

Profits Indicators
My proxy for business sales -- the dollar value of industrial output -- rose again at 6.5% yr/yr
through Jun. Good volume growth coupled with a slightly favorable price / cost measure
suggests profit margins probably expanded again in Jun. yr/yr. SPX quarterly earning power
is very near to $30 per share, and annual earning power is around $120. for a p/e of 16.5X
(assuming the SP 500 companies can hold the $30).

Liquidity Factor
The business economy is growing faster than is private sector liquidity. Since business demand
normally trumps the financial markets, stocks, for example, have become increasingly
dependent on the Fed's QE program, which is wending its way way down to shut - off this
autumn, as well as asset allocation strategies of the big markets players. Interestingly, money
market levels have remained at comparatively modest levels for some time. Ready cash is
flashing slim pickings.