Monday, August 4, 2014

US Dancing to “Get On Up” (excerpt)

The US economy appears on my worry list only indirectly and only because it is performing well, showing no signs of a recession. That’s bearish only if the Fed’s response of starting to raise interest rates in baby steps triggers an unanticipated financial crisis simply because interest rates have been too close to zero for too long. A rush out of corporate bond funds could be one of the consequences with recessionary consequences, or maybe not. It’s something to watch.

For now, let the good times roll: At the beginning of every month, the Bureau of Labor Statistics provides a whole bunch of labor market indicators. The latest batch was very upbeat. Everyone focuses on payroll employment. Debbie and I focus on our Earned Income Proxy (EIP), which is payroll employment times average weekly hours worked times average hourly earnings, all in the private sector. It is highly correlated with private wages and salaries (a major component of personal income), and also with retail sales.

The EIP rose 0.2% during July, following a jump of 0.5% the previous month. It is at a record high. So is private wages and salaries, which rose 0.5% m/m and 5.8% y/y during June. This augurs well for consumer spending during the third quarter.

Today's Morning Briefing: Complacency Disturbed. (1) Bad two days in a long bull market. (2) Dow Theory is bearish in theory. (3) Corrections are not required by law. (4) Recessions, not old age, kill bulls. (5) Sanctions against Russia could weaken Europe too. (6) Don’t cry for hold-outs in Argentina. (7) Normalizing Fed policy shouldn’t cause a recession. (8) Bad news on Japanese wages. (9) Terrorists, WTO, and Ebola. (10) Earnings need time to catch up with valuation. (11) Earned Income Proxy at new high, auguring well for US consumer spending. (12) “Get on Up” (+ +). (More for subscribers.)

No comments: