As Economy Shows Strength, Inflation Sure to Follow

Wednesday, 22 Dec 2010 08:29 AM

By Michael Carr

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Bad news about housing and unemployment seem to dominate the headlines. Both are generally recognized as lagging indicators of the economy. While they continue to show weakness, many forward-looking indicators support the idea that growth will pick up.

Looking at November’s data, the Conference Board’s Leading Economic Index increased 1.1 percent. This was the fifth consecutive increase, and marked an acceleration of the trend.

Buried within the report were a few other numbers. The Conference Board Coincident Economic Index for the U.S. increased 0.1 percent. The difference relative to leading indicators is large, indicating the future may look better than the present.

The Conference Board Lagging Economic Index declined 0.1 percent in November. Combined, the three numbers seem to confirm each other and signal stronger growth is a real possibility.

Another widely respected report leads to a similar conclusion. The Economic Cycle Research Institute shows the same direction in their indexes. This report gained a great deal of attention by turning ahead of both the most recent recession and the subsequent recovery.

ECRI is confident that growth lies ahead, recently noting that “a 'double dip' back into recession remains “off the table.”

However, they also reported that their inflation gauge is moving higher, and growth may finally fuel inflation.

Investors need to watch for both growth and inflation. It’s possible to profit from both, but only by following the data rather than the headlines.

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