Only the average workweek of production workers and manufacturers’ new orders for consumer goods and materials* held steady in December.
A further confirmation of the power behind the Fed's increase in the monetary base, the increase in LEI foreshadows changes in aggregate economic activity.
Coincident Economic Indicators also increased in December and it has gained in five of the last six months. Industrial production made a large positive contribution to the index, more than offsetting the decline in employment in December. Between June and December, the index has grown by 0.6 percent (1.2 percent annual rate).
Observers will note that employment continues to lag more than usual, in both LEI and CEI numbers.
The Lagging Economic Indicators (LAG) have started to bottom, but we are still a long way from a full recovery.
The only positive contributor to the index this month was change in labor cost per unit of output*. The negative contributors – beginning with the largest negative contributor – were commercial and industrial loans outstanding*, average duration of unemployment (inverted), and ratio of consumer installment credit to personal income*. The ratio of manufacturing and trade inventories to sales*, change in CPI for services and average prime rate charged by banks* held steady in December. Based on revised data, the lagging economic index decreased 0.5 percent in November and decreased 0.2 percent in October.
The most important measure here are
- C&I loans
- Consumer installment credit
- Prime rate.
TACTICS
Tactics remain the same. Focus on money market arbitrage, and look for quality lending opportunities.
Continue to shorten the maturity of assets.
Look for distressed assets and fund them with short liabilities until Fed tightening begins.
STRATEGY
The economy is in the early stages of the business cycle, and opportunities to purchase distressed assets will drive profits.
Inflation is beginning around the world, as the unprecedented monetary stimulus of the past year takes firmer hold.
As profitable companies emerge from the wreckage of the recent economic disaster, lending opportunities will increase. Take advantage of this opportunity to expand the roster of the institution's clients.
