Economic Roller Coaster May Have Reached Bottom

If there is one economic report I look forward to every month, it's the Conference Board's Leading Economic Index. Most of the stuff written by economist is so full of statistics, formulas, tables and graphs that by the time you weed through it all you forgot what the information says.

The Conference Board's report is different. They use only three major categories:

1. Leading Economic Index -- LEI -- 10 indicators
2. Coincident Economic Index -- CEI -- 4 indicators
3. Lagging Economic Index -- LAG -- 7 indicators

This month I'll sum up the report with this quote: "All in all, the behavior of the composite indexes suggests that the recession is bottoming out and that economic conditions will continue to improve in the near term." Pretty simple to understand, straight forward and to the point.

Let's look for some gems in the report:

LEI - 8 of 10 increased. The two that were down were average work week and building permits. We all know we have excess housing inventory and both present and future foreclosure inventory to work through. What I thought was interesting was supplier deliveries, and manufacturer's orders of nondefense capital goods and new orders for consumer goods and materials were up - more on this in just a minute.

CEI - Unchanged - Industrial production is up with the nonagricultural payroll down. Let's go back to Accounting 101. Industrial production up, supplier deliveries up, manufacturer's orders up, average work week down, nonagricultural payroll down -- sounds like improving margins are in store for the manufactures. That is a very good sign.

LAG - Improvement in labor cost per unit of output; again a good sign of future profit margins.

At least this report makes me feel better. Orders, production and deliveries up with labor costs down -- I like that. It seems like the roller coaster may have reached the bottom and all the bad news that hasn't already hit the fan at least has been discussed and accounted for. I think that we can be confident that a year from now the economy will be better than it is today.

Comments

[twotraps:]

Interesting article. Regardless of your bias or feelings about economic indicators, the mkt has trended higher. That either helped or hurt you, period. You don't have to like it or understand it, the mkt will move and that movement will affect your balance. Now, the disclaimer aside...I wonder what has really happened over the last year to make such upheaval this easily digested by the mkt! It seems to me that the govt balance sheet expanded quickly to prevent the banks from tipping over.....and it worked. So do we just move on? All is forgiven? What about lenient accounting standards to account for toxic debt on the banks books? What about the govt itself, loaning out money at a time when expenses have begun an uptrend due to increased population of retirees and increased health care costs? As an independent trader, you have to work within your means or the game is over...............that's the 50 ft high electric fence....thats the deterrent. There does not seem to be 'out of bounds' for the major players, other than the token failure by Lehman. Maybe it just does not matter, it could be that there really is a totally unlimited appetite for us govt paper to allow the charade to continue indefinitely, I honestly don't know. The recent rally has definitely been a nice distraction from the imbalances that still remain.

Oct 23 06:21 PM

[aussiereader4:]

Most rollercoasters have more than one bottom.

Oct 23 06:22 PM

[Albertarocks:]

And once every 90 years or so a piece of the track falls out at the top

Oct 23 07:16 PM

[Papaswamp:]

It is an opinion report based on information that has already been released. So far 7 banks have closed tonight. Existing home sales actually declined (read the NSA number), employment continues to decrease, rail transports continue to decline. Producers may be producing...but it doesn't seem they are shipping in large volume. As to you liking labor costs down...that is because companies continue to slash jobs in order to stay above water....that will only last for so long until you don't have enough employees to operate....then shut down. With 70% of our economy domestically consumer dependent....this is extremely bad. Only companies with presence in growing overseas markets will do well at this point.

Oct 23 09:01 PM

[No1:]

... and how much of that overseas growth is due to the declining dollar which inflates their sales figures. Declining dollar is a one trick pony.

Oct 23 09:16 PM

[Albertarocks:]

On Oct 23 09:16 PM No1 wrote:

> ... and how much of that overseas growth is due to the declining
> dollar which inflates their sales figures. Declining dollar is a
> one trick pony.<

With a strong day on Friday, Oct. 23 and with sentiment at 96% bearish, the table is set for the biggest October surprise of all. The earnings "surprises" were really just bunk and hype for the most part. At the very least, they were hyped completely out of proportion.

The real surprise is very likely going to be a stunning surge in the dollar, with charts suggesting it could possibly be a rally (in the dollar) that lasts for the remainder of 2009.

Oct 23 10:05 PM

[enigmaman:]

You said " This month I'll sum up the report with this quote: "All in all, the behavior of the composite indexes suggests that the recession is bottoming out and that economic conditions will continue to improve in the near term." Pretty simple to understand, straight forward and to the point."

What you didnt get into is what you meant by " near term" that is the phrase that demands your attention and nothing else because it is the proverbial "but" that when added to a statement of confirmation completely turns it on its head. Without explaining what you mean by " near term" and further explaining the affects of this as it relates to the markets there after, your opinion "I think that we can be confident that a year from now the economy will be better than it is today." isnt worth very much because the important details have been left out. So if I have 10.00 todays and have 10.10 one year from now you could say "I am better off then I was" but would I really.

Oct 24 09:45 AM

[jillhandley:]

Interesting article. Let's see where this roller coaster takes us.

Oct 24 02:31 PM

[Donald Ingram:]

To base your opinion on these indicators, is to be driving while looking in the rear view mirror. As one poster has commented "a roller coaster has more than one bottom." Remember, between 1929 and 1933 the market had five different highs - each lower than the previous high, making five lower lows before bottoming.
Those that don't take lessons from history are bound to repeat the same mistakes. Doing the same thing over and over and expecting a different outcome each time is a definition of insanity.

Oct 24 04:09 PM

[Mofo:]

I am not an expert in analyzing index's and forecasting what will happen next. However, I did notice that when clicking the 'Leading Economic Indicator' and saving the document to my hard drive a very fitting word appeared that sums up this article and its message.

Oct 24 04:46 PM

[TTurk:]

The roller coaster has reached "a" bottom and "is" trending upward. The recent rise from the bottom has only cost tax payers something close to $1 trillion.

When the public gets sick and tired of allowing its governments to spend good money after bad I don't think you will see the roller coaster rise to new heights. It will probably make a weak top and move lower.

Oct 24 09:24 PM