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Generational Dynamics Web Log for 23-Sep-04
The "Index of Leading Indicators" falls for third month in a row.

Web Log - September, 2004

The "Index of Leading Indicators" falls for third month in a row.

One economic indicator after another is surprising analysts:

When the recession ended early in 2003, analysts predicted that job creation would increase rapidly. Instead, the economy kept losing jobs throughout 2003. Jobs only began increasing anemically this year, still well below analysts' projections.

The Fed has been raising short-term interest rates in the expectation of surging inflation, but inflation has been almost nonexistent. Significantly, long-term rates have been falling at the same time.

Now we see that the Conference Board's index of leading indicators fell in August for the third month in a row.

This contrasts to the statement made by the Fed (specifically, the Federal Open Market Committee) on Tuesday when it raised interest rates by 0.25% to 1.75%. According to the statement, "output growth appears to have regained some traction," which contradicts the actual results we've been seeing.

If we look at the leading indicators since the beginning of the year, we get the following table:


                 Index of Leading Indicators for each month
                                    2004                
                     Jan. Feb. Mar. Apr.  May June July  Aug
   ----------------- ---- ---- ---- ---- ---- ---- ---- ----
    Leading Index    +0.5 +0.3 +0.3 +0.1 +0.5 -0.2 -0.3 -0.3
   ----------------- ---- ---- ---- ---- ---- ---- ---- ----

As you can see, the leading indicators have been falling significantly in the last three months.

This is the same three month period when the Fed has been raising interest rates, and it's also the same three month period when inflation rates have been so unexpectedly low as to indicate a deflationary trend.

And of course the job creation rate is still far below expectations.

Now, you can make what you want of these figures, but at the very least you should conclude that the pundits and high-priced analysts have absolutely no idea what's going on with the economy.

As for the Fed, I was giving them the benefit of the doubt until last week, when the Fed published an incredible report bragging that they'd saved the economy by misleading the public.

As I've been saying since 2002, Generational Dynamics predicts that the economy is entering a new 1930s style "great depression," and that stocks will fall by 50% or more in the next two or three years. (23-Sep-04) Permanent Link
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Generational Dynamics Web Log for 23-Sep-04 The "Index of Leading Indicators" falls for third month in a row.

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Generational Dynamics Web Log for 23-Sep-04
The "Index of Leading Indicators" falls for third month in a row.