Production and Utilization

"...At 94.2 percent of its 2007 average, total industrial production for July (2011) was 3.7 percentage points above its year-earlier level. The capacity utilization rate for total industry climbed to 77.5 percent, a rate 2.2 percentage points above the rate from a year earlier but 2.9 percentage points below its long-run (1972--2010) average..."

This information was obtained from the www.FederalReserve.gov site 8/21/11 and, in the midst of all of the recent bad news and stock market lows, helps to bring a little perspective. The U.S. is making more than last year and using plant capacity at a slightly higher rate than last year.

These are longer-term positive trends to focus on during short-term volatility. It is not all bad in the economy and these numbers are certainly better than last year. Hope. Perspective. Hard things to find through the media onslaught.

Emerging Markets and Inflation

Something to keep in mind about these developing (emerging) markets is that food prices may make up more than 50% of the CPI (inflation index) in many countries.

Therefore, food price increases may inflate emerging market economies faster than in the United States.

Misery Index

The misery index was started in the 1970's and is the sum of the unemployment rate and the inflation rate. It almost reached 22 in the summer of 1980. Since inflation has been so low for so long it seems the index has not been mentioned much. As unemployment has decreased from over 10% to 8.9% (February 2011) the misery index may still not get much mention.

Why bring it up? The unemployment rate is still high and inflation, of some sort, may be around the corner.

Company profits and the stock market

A November 16, 2007 note from David Frazier's column from newsmax included the graph above showing the correlation between company profits and the S&P 500. I was amazed to see how closely profits correlate with the stock market. You cannot see it from this graph, but the average earnings over the past 30+ years have been about 8% for company profits. The past 10 years or so has averaged double-digits though.

If dividends average just less than 2% then you can see where the long-term average stock return of about 10% comes from that is so often quoted. You can also see how divergent returns compared to company profits were during the 1999-2000 heyday of the stock market. A reversion to the mean surely was not unexpected based on historical performance.

Once again, history has lessons for us to heed.

Consumer Expectations Index- what does it mean?

So a recent moneynews.com e-mail says that this graph is evidence that when this Consumer Expectations Index goes down, so goes the stock market. Hmmm... Is that true? Look at the trend from 1984 through 1988 and you see that the index goes from a high near 99 to a low of 70. What did the S&P 500 do? Went up from a low of about 200 to about 500. And the real point of all of this is that the long-term trend is up. Would we ever see the S&P 500 at 200 again?

Personal Consumptions Index

Bernanke said that the headline price index for personal consumption expenditures inflation rate is at 4.4% annual rate over the first five months of the year. This pace, if maintained "would clearly be inconsistent with the objective of price stability."

Purchasing Manager's Index

Here is an interesting chart from the October 2nd Institute of Supply Management with history from 1969 to present.

If the PMI (Purchasing Manager's Index) falls below 50, does that mean the stock market can be expected to go down? Or that a recession is looming on the horizon?

Some would like you to think so, but as a leading economic indicator over the past 40 years only big drops in the index seem to tell us anything.

The most recent drop from 54 to 52 (still above 50) does not seem to be conclusive to me as that has happened many times before and then rebounded. When it hits 40 or below, then recessions seem to appear.

Purchasing Manager's Index - more

Here we go again with the Purchasing Managers Index. Again, the trend line to cross is 50 - up or down. But, only big swings down foretell a recession. We have to wait on this one.

Consumer Expectations Index

Note how the S&P 500 trends upward over the past 40 years while the Consumer Expectations Index is far from consistent. Can this index hint at what the stock market is going to do next week, next month, next year? Maybe, when there are very large swings in consumer confidence but not on small changes. Don't listen to the hype.

Another Economic Indicator - New Car Sales

And the figure stood at minus 2.4 percent when June sales figures were released by the Census Bureau.

The indicator has correctly called five recessions since 1968, and has never warned of a recession that did not occur, according to an analysis by The New York Times.
For instance, the indicator dipped to minus 2.9 percent in November 1979, and a recession began two months later; it dropped to minus 2.6 percent in May 2001, just two months after a recession began.
The indicator measures all sales by new-car dealers, including the sale of used cars, parts, and service. It does not measure sales by dealers who sell only used cars.