Economic Indicators: U.S. Wealth Shifting and Losing Value

Americans' wealth is neither keeping up with inflation nor global growth. The shifting wealth trend is discussed in depth and using GDP per person data in the Economist magazine. Comparing inflation statistics with personal income growth data below demonstrates declining wealth in the U.S.. To make things worse, The Jarkarta Globe quotes a Merrill Lynch Economist as saying  "we will have to deal with a sharp slowdown" in reference to Asian economies.

• BLS reports 4.8 percent '09-'10 drop in consumer expenditures
• 1Q and 2Q revised annualized GDP .7 percent per the BEA
• BEA: State personal income growth 1.1 percent in 2Q 2011
• 12 month consumer price increases 3.8 percent per the BLS

Moneycation also reported yesterday data released by the Federal Reserve Bank of Chicago showed national economic activity has turned negative. About a week ago the Federal Reserve Bank Board of Governors stated a significant economic slowdown was being observed. Zero Hedge also shed on light an untypically candid or uncensured opinion of a trader interviewed on BBC. The video is worth watching even if only for its uniqueness

What Q1 2011 Leading Economic Indicators Say

The following leading economic indicators published by the U.S. Government Printing Office and sourced from the U.S. Department of Commerce show an increase in consumer spending dollars spent, and industrial production, but a decline in employment and private investment. With little positive change in employment levels and private investment the source of these increases could just be credit.

• Total personal consumption expenditures: $9,486.4 billion (Up)
• Gross private domestic investment $1,800 billion (Down long-term)
• Official unemployment rate 9 percent (Up)
• Corporate profits 1,800 billion (Up)
• Private Employer Cost Index  113.3 (Up)
• Total Industrial Production 93.6 (Up)

Corporate profits are at 2006 levels meaning they haven't caught up with past levels of profit making despite recent increases. With expiration of quantitative easing in June 2011, and the national debt ceiling reached the idea of new stimulus is weak. Economics indicates new growth will have to be organic or take advantage of a relatively strong rate of global GDP growth via return of U.S. based international corporations increasing profits. Any increase in the dollar will help ease inflationary pressures such as gas prices but could hurt exports and corporate profits.

Assessing Economic Indicators

In economics indicators are used to get a picture of what is happening, and might happen in the future. Economists can then make more informed decisions and assessments. Four such metrics are the Institute for Supply Management Manufacturing and non-manufacturing indexes, government spending as percent of GDP and consumer spending. Since the economy is an important aspect of market performance, being aware of what these indicators are saying is important to medium and long-term investment performance if they are being looked at in that context.

ISM-NM Index

The services industry comprises 40-50 percent of the U.S. economy as measured by employment. This month Bloomberg reported a march decline in the Institute for Supply Management's index of non manufacturing companies due in part to rising fuel costs to 57.3. Historically speaking this number is actually quite high in terms of the the ISM-NM Index for the last 10 years, indicating a possible peak if past trends are any indicator.

Government expenditures

Government entitlements such as social security alone are equivalent to 14 percent of GDP according to the Heritage foundation. If government is such a large financial contributor to the economy, what happens when budget cuts take affect seems to contradict the optimistic economic affects of corporate growth?

Consumer spending

If consumer spending accounts for 70 percent of the economy, high unemployment doesn't help that much. However, if 80 percent of spenders account for only 7 percent of total U.S. wealth as suggested by the University of California Santa Cruz Sociology Department, then what's more important in terms of spending is the top 20 percent. This group does appear to be getting wealthier, however even the 19 percent of Americans who account for 50.3 percent of U.S. wealth have lost money via declines in the housing market. Even with rises in equity valuations, that wealth does not appear to have recovered indicating a loss of spending power.

Several more economic indicators exist. The Conference Board Leading Economic Indicator Index is a composition of such items. Assessing the largest indicators is one way to acquire a general forecast of where the economy might be heading, and is unlikely to be specific enough to evaluate the performance of individual businesses within the economy. For that a more refined analysis is needed.