Economic Indicators

Weekly Leading
As previously discussed, the two weekly indicator sets have plunged
since 6/08. That implies deep output and profits weakness for Q4
'08 and the current quarter, too. Both data sets are showing stability
for Dec. '08. We saw this last spring as well, only to see them do a
Wiley Coyote cliff drop after June. The recent stability needs
attention. it did help the stock market last month and gave the
T-bond a frisson of doubt as well.

Monthly Leading
Here I monitor the breadth of new orders across industry and
commercial. For the US, these indicators are deep in the red and the
composite total is still falling. Ditto global. Heavy duty pressure on
profit margins is indicated.

Economic Power Index
This index (real wage plus change of employment yr/yr) continues to
recover. It hit 1.7% in Dec. compared to a deep -2.5% near mid - '08
when inflation was ravaging the wage. Weak retail sales implies
consumers remain more interested in building savings than in
spending. So far, 3 million US jobs have been lost. History says that
retail should start doing a little better in the months ahead.

Omnibus Cycle Pressure Gauge
I devised this one over 20 years ago to track the Treasury market.
It includes production, commodities prices, the CPI, the 91-day T-bill
yield and other measures. It has fallen over 50% since mid-'08 and
ratifies the plunge in Treasury yields. I use weekly data pieces of it
to trade bonds. (For another such measure, click here.)

Capital Slack
There's plenty of it and it is growing now that bank C&I loans appear
to have rolled over. In a deep recession, business loans can roll off
to the tune of 25%. Credit slack joins rising unemployment and low
and falling operating rates to indicate large and growing under-
utilization of capital. Not for nothing that the Obama team is pushing
hard for a big stimulus package.

On balance, the economy is still on the cusp of catastrophic trouble.
The economic power index may be an interim peak level, but it
joins easy money and growing liquidity to form the traditional
base for recovery. Whether we stave off bigT trouble depends on
how consumers balance spending and savings in the months ahead.