Monday, January 6, 2014

The economy keeps on ordering



The above chart has a lot in common with the chart featured in last week's post "The economy keeps on trucking." Both show that the progress of equity prices is related to growth of the physical economy. Last week's chart showed how equity prices are ultimately grounded in a measure of total truck tonnage; this week's chart shows how equity prices track factory orders. Both charts suggested that equity prices "overshot" the progress of the physical economy around 2000, and both suggest that equity prices are now reasonable (or "fair") given the progress of the physical economy.

Nondefense factory orders are now at a new all-time high, having risen 5.1% in the year ending November 2013. Total factory orders are up almost 5% over the same period, and the gain in November was about as expected (+1.8% vs. +1.7%).

This is still the weakest recovery ever, but it is nevertheless a recovery, and more and more measures (e.g., truck tonnage, rail traffic, factory orders) of the size and strength of the economy continue to improve. So it is not surprising at all that equity prices should also be breaking new high ground.

7 comments:

Unknown said...

Coming tomorrow: "The Economy Keeps on Trading."

Benjamin said...

Since QE3, the economy has been growing moderately, no inflation, good equity and property markets. Maybe the Fed should taper up...

William said...

Economist Ed Yardini Blog:

"The WSJ ran an article at the end of last year (12/25) titled, “Companies Binge on Share Buybacks.” For the past couple of years, this has been a story I've often told to explain what’s driving the bull market. Recently released data show that S&P 500 companies repurchased $128 billion of their shares during Q3. They paid out $79 billion in dividends during that quarter and a record $85 billion during Q4. The $207 billion sum of buybacks and dividends for Q3 is just shy of the $233 billion record high during Q3-2007.

Since the start of the bull market during Q1-2009 through Q3-2013, share buybacks totaled $1.6 trillion and dividends totaled $1.2 trillion, summing to a whopping $2.8 trillion! Corporate cash flow rose to a new record high of $2.3 trillion (saar) during Q3. Yet non-financial corporate net bond issuance totaled a record $665 billion over the past four quarters through Q3, with issuers using some of the proceeds to buy back their shares.

Buybacks are likely to remain strong in 2014. Now imagine the melt-up potential of the stock market if the Great Rotation by retail investors from bonds into stocks continues to build momentum. And by the way, January has a history of being a good month for inflows into equity mutual funds.

http://blog.yardeni.com/2014/01/buybacks-great-rotation-and-melt-up.html

Unknown said...

!!! CHECK OUT THIS CHART !!!

William McKibbin said...

I'm not sure to what extent, but we should consider that most "consumer durables" (e.g., mobile phones, tablets, laptops, washing machines, refrigerators, etc.) are manufactured overseas and imported into the US -- I am interested in comparing the orders for consumer durables with import figures -- nevertheless, increased orders for consumer durables is good news -- I am just concerned that these orders are not domestically manufactured -- I'll have a look...

William McKibbin said...

PS: On a separate note, watch for malls across the US to collapse by 2015 -- Sears and JCP are on the ropes and clearly being harvested in preparation for sunsets -- the mall in my town is essentially vacant except for Korean food joints and third-party reverse logistics liquidators -- may malls in the US are already rubbling their interior stores in an effort to convert their flagship stores into stand-alone facilities with greater parking -- but again, Sears and JCP are not going to make it through 2014 in their current form -- Main Street USA is reducing retail capacity at alarming rates, while Amazon takes over the retail space -- again, keep an eye on malls in 2014-2015.

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