Having a Great Summer

The stock market is soaring, the money supply is expanding, the key leading indicators are positive, more Americans are employed than ever before (currently over 146.9 million of us have jobs), and Disposable Personal Income is 3.4 percent higher than it was at this time last year.

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For the sake of clarity, Disposable Personal Income is our “after tax” income and an increase over last year means we can spend (most likely) or save (who saves?) more. Even the weather has improved of late. How can anyone, let alone an economist, not have a wonderful summer with all of these great things going on.

The bottom line is simple: The U.S. economy is growing and will continue to grow as we travel through the rest of this year and move into 2008. The growth rate will moderate some as we move through the rest of the year, but not enough for most folks to notice. 2008 will see most of your markets expand over 2007 levels of activity. Take your vacation and relax.

Just the facts

Here are some particulars. The year-over-year comparisons for the benchmark U.S. Industrial Production Index, Retail Sales, and Nondefense Capital Goods New Orders all show results above year-earlier levels, but are also trending downward in their year-over-year rates-of-change, which means slower growth ahead for the economy in general. We think the depressed housing market will see some stability in the second half of this year and into the early goings of 2008, but the overall trend for this industry will be difficult for many participants. The recent rise in long-term interest rates cannot be good news for the housing market.

I mentioned key leading indicators in the first sentence. The Purchasing Managers Index is now in its seventh month of rise, a signal that manufacturing will regain some upward momentum by early 2008. The outlook is buttressed by the rise occurring in the Corporate Bond Prices, the U.S. Leading Indicator  and in the EcoTrends Leading Indicator. We provide readers of EcoTrends, our monthly economic report, with immediate updates on these leading indicators, as this provides monthly input into the internal planning process.

More good news can be found in that the Federal Reserve Board has not raised the Federal Funds rate since August 2006, and in the fact that the money supply is expanding. Employment is on the rise and there may be a “wealth effect” from the stock market helping America to keep spending. 

Expect inflation and potentially, energy costs, to become more provocative as we move through the latter stages of 2007 and in 2008. We would encourage all to lock in your oil and gas costs as soon as you can for the upcoming winter heating season.

The outlook for 2009 is not nearly as bright. We suggest that you improve efficiencies and use your cash to expand into new markets, hopefully ones that are less subject to downside business cycle pressures.

This month, we will take a look at Information Technology New Orders.  Information Technology New Orders (NAICS 334512-9) encompasses hi-tech apparatus used in measure, display, control and test processes. New Orders are growing at a slower pace, but most participants should be busy and pleased with the current 5.2 percent annualized growth rate. There is a still a lot of work out there—it is just that the rate of growth is slowing. This would be a prudent time to budget for a flat growth rate in the second half of 2007 followed by improved growth in 2008. 

Alan Beaulieu,

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