Saturday, June 22, 2013

U.S. economy hangs tough, but for how long?

In the face of the uncertainty that’s currently roiling the financial market, and despite growing economic weakness in Europe and Asia, the U.S. economy remains firm against all odds. 

Granted this could change later this year, especially as the Kress cycle-induced deflationary wave makes its way from Europe and Asia to U.S. shores.  For now, though, the U.S. retail economy is a picture of stability as reflected by the New Economy Index (NEI).  

The NEI is a real-time measure of how the U.S. economy is performing.  It’s comprised of the stock prices of the leading retail, business service and transportation companies and employment agencies.  It measures every vital aspect of the domestic economy; it’s shifting fortunes are gauged by the relationship of the NEI price line to the 12-week and 20-week moving averages.

Presently the NEI remains above both key moving averages and also above the intermediate-term uptrend line, as shown in the following graph.  The index hasn’t given an economic “sell” signal since the spring of 2010 (which was a temporary blip following the “flash crash”).  NEI has so far managed to capture every major and minor turning point in the U.S. economy since its inception in 2007.  

What NEI is showing us is that while U.S. consumers as a whole are still spending, especially those in the upper income scale, their aggregate level of spending is somewhat diminished since peaking in January of this year.  Luxury goods sales on the other hand are currently at levels not seen since before the credit crisis, as are new home purchases.  I anticipate this trend will change later on this year as the overseas economic slowdown eventually makes its presence felt in the U.S.  According to the economists at Kiplinger, “Manufacturers will continue to bear the brunt of a global slowdown, with factories likely to shed more jobs and cut more output by summer’s end.” 

For now, the economy’s good fortunes remain intact despite financial market volatility.  The million dollar question is how much longer will it be able to maintain this strength as the super cycle deflationary wave heads closer to home?

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