Pulling It All Together/Appendix

Appendix. Capital Market Performance
Appendix. Consumer Finance Rates
Appendix. Leaders
Appendix. Coinciders
Appendix. Laggers

The Economy…
Harsh weather may have been a factor underlying some recent weak economic data and a steep slide in the percentage of AIER’s leading indicators that point to expansion. That decline remains a cause for concern, but balancing it is a number of still-positive indicators, particularly in labor market data as well as consumer and business confidence measures. Our analysis suggests the softness detailed in this report will prove temporary and that the U.S. economy will reaccelerate in coming months. Nevertheless, we continue to monitor our business cycle indicators and other economic data for any more signs of a change in direction.

Our inflationary pressures scorecard suggests marginally firmer forces that could push prices higher. Though six of our indicators changed in the latest reading, the scorecard overall remains close to balanced, with nine now pointing to rising price pressures and 11 suggesting falling pressures. Three indicate stability.

Weighed by a steep slide in energy costs, the consumer price index roughly followed its recent trend in the latest month and lags behind the Fed’s 2 percent growth rate target. Excluding food and energy, core CPI increases remain moderate and still show sharp divergences between prices of goods and services components.

Forward guidance from Fed policy makers suggests the central bank is moving towards increasing its target for short-term interest rates but the first increase is highly unlikely before June.

Regulators are writing rules to make brokers follow the same fiduciary standards that govern registered investment advisers. The plan aims at eliminating conflicts of interest and resulting damage to investors’ returns.

As Fed interest rate increases approach, our research suggests shorter-term fixed income securities may perform better than longer-term debt during cycles of tightening credit. Rising rates combined with current low bond yields may reduce fixed income returns, compared with historical norms, over the next several years.

Industrial commodity prices remain weak overall amid a strengthening dollar and sluggish global demand. That weakness is confirmed by slowing orders and production of U.S. primary metals and is consistent with other signs of slowing in the U.S. economy.

Current expectations of equity analysts are for U.S. corporate earnings to grow at or slightly above long-term trends. Above-trend growth expectations imply that equity analysts have not embedded the potential effects of an economic downturn in their earnings forecasts. That in turn, reinforces the view that recent weakness indicated by some economic data may only reflect temporary conditions, such as harsh winter weather.

Global markets have posted solid price gains, though most have trailed U.S. markets. In most cases, earnings growth has also lagged U.S. corporate performance, with some markets’ earnings declining in recent years. The disparity between price gains and earnings gains raises questions about the sustainability of some international equity markets price gains.

Next/Previous Section:
1. Overview
2. Economy
3. Inflation
4. Policy
5. Investing
6. Pulling It All Together/Appendix