The turn in corporate profitability is not negative, just slower. Given the slower corporate growth rate and earlier equity overvaluation, it is not surprising that the market adjusted to a more realistic expectation of the future.
Historically, consumer credit started 1987 at $653 billion. It is now at a $3,918 billion level. The quality of the credit is much better than historically and has remained stable at a combined default rate of 0.87%.
Currently, the index is portraying a consumer that has debt under control and manageable. Bank credit cards and first mortgage rates improved while auto loan default rate remained unchanged. The composite index is at 0.86 in June which is 0.03 points lower than last month, but 0.04 points higher than this time last year. Mortgage defaults are also slightly higher, year-over-year at 0.63. Auto loans have increased by 0.11 points from last year.
Throughout the years investors have keyed on levels of industrial production in an attempt to identify directional changes in the stock market. We have all watched significant changes in the market attempted to be explained by a corresponding move in industrial production. “The market moved up because…”, or “The Market moved down because…” resonates, when markets move in one direction or the other, on the same day that industrial production numbers have been released. This explanation may be useful on a daily basis, or may be interesting to contemplate, but for longer period analysis it is less certain.
Today we are starting to show the influence of the U.S. Industrial Production on U.S. stocks within the database. Each individual stock’s data sheet will now have a notation titled Industrial Production. Figure 1 provides a cutout of the table that is available through the stock search menu option. The Industrial Production index is an economic indicator that measures real output for all facilities located in the U.S. manufacturing, mining, electric and gas utilities. It also includes newspapers, periodical and book publishing. The index is calculated monthly with a base year of 2002.