Economy In Pictures: Have We Seen The Peak?
The general mantra from mainstream analysts and economists since the first of the year is that the "economy is set to finally turn the corner." The premise of the assumption is that the Fed's continued monetary actions, and now specific targeted goals of suppressed inflation and targeted employment, is going to push the economy into "escape velocity."
Normally, I devote my writings each day to pointing out the data trends behind the headlines and discussing my personal views on the economic, and financial, implications relating to what the data analysis reveals. Today, I leave the analysis up to you.
The following series of charts displays several important economic variables ranging from incomes and production to economic growth. The question for you to answer: "Is the economy about to boom OR has it peaked for the current economic cycle?"
As you look at each chart below compare what you are visualizing versus what you are being told.
Wages & Salaries
Incomes are the lifeblood of the economy. In order for consumers to consume (which makes up roughly 70% of the economy currently) wages must rise at a rate to support increases in consumption.
As state above, personal consumption expenditures (PCE) comprise about 70% of the gross domestic product calculation. As PCE goes - so goes the economy.
Production and Manufacturing:
The chart below is the STA Economic Output Composite Index which is an index comprised of the Chicago Fed National Activity Report, ISM Composite, several Fed regional manufacturing surveys, Chicago ISM PMI, and the NFIB Small Business Survey. This is a very broad measure of the economy.
The chart below shows both the seasonally adjustment employment levels compared to a 12-month moving average of the non-seasonally adjusted data.
Regardless of your personal views about the economy, the political environment or the markets - what is important is to separate emotion from investing. While the Fed's continued liquidity injections have sharply boosted asset prices in recent months - the bond market, as shown in the chart below, has continued to show a preference of safety over risk. With rates plunging in recent weeks the indictment from the bond market concurs with the longer term data that the economy remains at risk.
While the stock market continues to ramp up due to the Fed's interventions the disconnect between the markets, and the real underlying economic fundamentals, will ultimately resolve itself. I am not suggesting that a crash is looming as none of this data suggests that a recession is imminent, however, the data also does not support the mainstream view that the economy is set to accelerate or that the markets are entering into the next great secular bull market.
The reality is that the economy is continuing to muddle along through the greatest monetary experiment in modern monetary history. However, what is becoming more readily apparent is that the impact from these ever expanding programs continue to support Wall Street and the financial system but fails to improve the diminished state of Main Street.