Economy Watch: Wall Street Has a Very Busy “Off” Day

October 11, 2011
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user Randy Le'Moine Photography

Since the Columbus Day holiday isn’t particularly important to the investment world, U.S. equities markets weren’t closed on Monday and investors took advantage of the open markets to buy, and then to buy some more. The Dow Jones Industrial Average rose 330.06 points, or 2.97 percent, its largest rise since Aug. 11 – which is the time when everyone was happy that the United States wasn’t going to default that week. The S&P 500 was up a healthy 3.41 percent and the Nasdaq bagged a 3.5 percent increase.

Perhaps the promise by the president of France and the chancellor of Germany over the weekend to do something or other about the euro-zone crisis spurred Monday’s gain, since, like everyone else, investors would like nothing better than to see the euro-zone crisis go away. For now, investors seem willing to ignore reports that France and Germany can’t quite agree yet on how to recapitalize European banks with significant exposure to dodgy sovereign debt.

Wall Street also seems to be expecting that third-quarter earnings among most corporations will be reasonably strong, and maybe that retail sales numbers — which will be reported later this week — to be more positive than during the summer. The upward movement in equities came despite the downtick in Netflix stock upon that company’s announcement that it was tired of being mocked for an idea like “Qwikster,” which it’s sheepishly abandoning.

OECD Leading Indicator Downbeat

The Organization for Economic Cooperation and Development’s latest composite leading indicator, the CLI, was released on Monday and it isn’t nearly as optimistic as Wall Street. According to the Paris-based organization, the CLI for August dropped to 100.8, down from 101.4 in July. It was the fifth monthly decline in a row for the CLI, and indicates that economic activity worldwide is barely above long-term trend.

The OECD CLI is designed to provide early signals of turning points (peaks and troughs) between expansions and slowdowns of economic activity, and with the recent downturn, it looks like late 2010 and early 2011 might be a miserable, weak peak with a trough of unknown depth ahead, though there’s no indication that it will be as deep as the late 2008/early 2009 Mariana Trench-like trough, which took the index well below 90.

Besides the overall index, the OECD compiles CLIs for 29 member countries, for six non-member economies and for seven country groupings, such as the euro-zone. The CLIs for the United States, Germany and Russia point more strongly to a slowdown than in previous assessments, but are still above 100, while all other major economies, except Japan have CLIs below 100, pointing strongly to a slowdown in economic activity.

Incomes Shrink Even Though Recession Technically Over

Another bit of news that Wall Street seemed to overlook on Monday regarded the comparative contraction of U.S. household incomes in recent years. During the period after the worst of the Great Recession incomes contracted more than they did during the panic and recession itself, according to Sentier Research, a firm established by Gordon Green and John Code, two former Census Bureau officials.

Between December 2007 and June 2009, U.S. median annual household income dropped 3.2 percent to $53,518, noted Sentier. No shocking surprise, considering how steeply the economy contracted after the panic of 2008. But from July 2009 to June 2011, U.S. median annual incomes dropped to $49,909 — another 6.7 percent.

Less surprisingly, much of the slide occurred because the median annual incomes of jobless heads of households dropped by nearly a fifth — 18.4 percent — to $33,487, while full-time workers “only” saw a slide of 5.1 percent to $68,465. Considering these kinds of post-recession drops, it might be time to re-think the definition of a recession.