1
April/May 2009 BCM US Monitor
Summary:
• Economy has peaked in terms of spending, production & employment
• US economy in late Stage 5 – Early Downturn
Stocks: May have further downside risk (perhaps 20%)
Commodities: Likely to have formed a bottom
Government Bonds: Likely to have formed a top
Firm Strategy: Budget offerings, look for long-term supplier contracts
Personal Strategy: Protect job, expand skills, reduce spending, rent
April/May 2009 US Supplement

US Economic Summary, Asset, Personal & Business Strategy 2
US Economy Business Strategy
1. Consumer sentiment remains at historical 1. Competitive Strategy: Continue budget
lows offerings
2. Consumer wealth is falling with stocks down 2. Operational Strategy: Continue cost
and property falling reduction efforts, reduce inventory
3. Consumer spending (demand) growth 3. Human Resources: Review remuneration
continues to contract conditions
4. Business production/service activity 4. Supplier Strategy: Anticipate upcoming
continues to contract purchase of capital equipment
5. Unemployment is rising at steady rate 5. Acquisitions/Divestments: Anticipate
possible acquisitions
6. Leading economic indicators continue to fall,
albeit at a slowing rate
Personal Strategy
7. The US economy is early in Stage 5 – Early
Downturn 1. Conservative Investor: Cash is king, wait for
transition to equities
Asset Classes 2. Aggressive Investor: Corporate bonds
1. Equities: Possible short-term bottom in place 3. Property: Rent over buy if possible
2. Property: Slower decline rate, small falls 4. Employment: Protect job, expand skills
ahead 5. Finances: Reduce debt and spending
3. Bonds: Likely top in place
4. Commodities: At or near bottom
April/May 2009 US Supplement

Much more at www.business-cycle-monitor.com 3
• Register for the FREE BCM Global Monitor
• Articles
– Why monitor?
– 8-Stage business-cycle
– Asset class, firm, personal business cycle
– 90 years of US recessions
– How to interpret economic data
• Custom Book Store
– Business cycle theory & application
– Economics and investing
– Featured Book
• Publications
– BCM Global Monitor
– BCM US Monitor
– BCM Australia Monitor
• Resources
– Monitoring resources
– Learning resources
– Sites & Blogs list
– Timeless & Topical Articles
• Slideshows
April/May 2009 US Supplement

Global Economy: What stage are we in? 4
The business cycle is
Expansion Slowdown Downturn Recovery
Actual currently in Stage 5 – Early
Economy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late Downturn.
OECD Leading
Over the next few months
Indicator (100)
we expect to see further
declines in economic
OECD Reference
Series (100) indicators until consumer
sentiment and spending
Consumer
recovery.
Sentiment
Consumer
The trigger for the
Spending Grth
transition to Stage 6 – Late
Downturn is recovering
Industrial
Production spending in leading sectors
of the economy, whilst
Rising Stagnating Falling Falling Stagnates Rising Rising Stagnating
PMI lagging sectors continue to
Above 50 Above 50 to 50 Thru 50 Below 50 Below 50 To 50 At 50
decline.
Rising Stagnating Falling Falling Stagnates Rising Rising Stagnating
PSI
Above 50 Above 50 to 50 Thru 50 Below 50 Below 50 To 50 At 50
Unemployment
Rate
Business
Investment
Reserve Bank
Funds Rate
8 Stage Business Cycle
April/May 2009 US Supplement

8 Stage Asset Class Cycle: Where to invest? 5
Expansion Slowdown Downturn Recovery
Asset
Classes 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Stock
Market
Commodity
Sectors
Government
Bonds
Stock Market
• Stock market performance matches our 8-stage business cycle prediction
The March/April rally appears to be anticipating a 2010 1st quarter recovery
•
• There is a risk of further downside until a signs of economic stabilisation occur
Commodity Sector
• Commodity performance appears slightly ahead of our 8-stage business cycle model
• Commodities appear to be forming a base with accumulation on weakness warranted
Bond Sector
• Extreme central bank interest rate interventions have bonds ahead of our 8-stage model predictions
• The top in bonds appears to have been achieved in Dec 2009
8 Stage Business Cycle
April/May 2009 US Supplement

8 Stage Firm Business Cycle: Business Strategy Ideas? 6
Expansion Slowdown Downturn Recovery
Business
Strategy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Competitive Budget Quality
Key Customers New Customers
Offerings Offerings
Strategy
Sales Consider long- Move to long- Key Customers Consider short- Move to short- New Cust.
term contracts term contracts Budget Offers term contracts term contracts Quality Offers
Strategy
Operations More cost Expand
Cost cutting Plan Expansion
cutting Operations
Strategy
Human Review
Avoid wage Enter wage
Limit Hires Hire Staff
negotiation negotiation
conditions
Resources
Acquisitions/ Avoid acq., Sell Plan for Make
assets acquisitions acquisitions
Divestments
Supplier Move to short- Press for Move to long-
Press quality
term discounts term
Contracts
Debt (Loan) Sell assets, Seek short-term Ensure credit Procure capital Seek long-term
reduce debt funds availability equip funds
Management
Firm Business Cycle Strategy Ideas
• Continue to focus on budget offerings, consumers/customers/clients are under financial pressure
• Target sales activity towards key customers with budget offerings (recognise their financial pressure)
• Look to use the crisis to implement cost cutting, institute more efficient work practices/processes
• Look to review wage remuneration rates to lock in lower unit labour costs
• If cashed up, start planning for acquisitions that will expand market share or product offering
• Continue to press for discounts from your major suppliers
8 Stage Business Cycle
April/May 2009 US Supplement

8 Stage Personal Business Cycle: Personal Strategy Ideas? 7
Personal Expansion Slowdown Downturn Recovery
Strategy 1. Early 2. Late 3. Early 4. Late 5. Early 6. Late 7. Early 8. Late
Conservative Stock
Transition to Transition to
Stock Market Stock Market Term Deposit Term Deposit Stock Market
cash stock market
Investing Strategy Market
Aggressive Stocks & Stocks & High Quality High Quality Corporate Transition to
Commodities Stock Market
Commodities Commodities Long Bonds Long Bonds Bonds Stocks
Investing Strategy
Employment Pursue Seek secure Become Plan next Assume Pursue
Seek wage rise Expand skills
promotion employment indispensible career move responsibility promotion
Strategy
Spending & Debt Cut back, Focus on Buy major Take long-term
Essential only
retire debt retiring debt items debt
Strategy
Housing Avoid buying here, prices and Avoid buying here, lower as Try to buy here, prices and
sentiment buoyant lower prices are ahead sentiment subdued
Considerations
Personal Business Cycle Strategy Ideas
• Conservative investors remain in cash. Begin planning your stock investments as we approach Stage 6
• Aggressive Investor may look to transition towards corporate bonds or look for a stock market bottom
• This is a time to expand career skills through skills training or difficult assignments
• Focus on essential purchases only at this stage, look to retire debt
• Avoid buying property here if possible, lower prices are ahead
8 Stage Business Cycle
April/May 2009 US Supplement

8
Don’t forget to register at
www.business-cycle-monitor.com to receive this
free publication each month to your inbox.
You can also register to receive the current
BCM US Monitor ($0.99/month), or our
BCM Australian Monitor ($1.49/month).
These country specific publications provide far greater
detail on their respective economies. Essential reading!!
Understand, monitor and exploit the business cycle…
April/May 2009 US Supplement

OECD World/USA CLI & Industrial Production 9
The World* CLI declined 0.82 to 91.41 in February Declined 1.12 to 89.87 in February (previous
(previous month decline 1.05). If the trend of a month decline 1.36). If the trend of a slowing rate
slowing rate of decline continues the CLI should of decline continues the CLI should bottom in 5
bottom in 4 months (June 2009). months (July 2009).
Industrial production continues to collapse. A 6 Industrial production continues to decline. A 6
month lag from the CLI sees IP bottom in month lag from the CLI sees IP bottom in January
December 2009. 2010.
Global Leading Indicators
April/May 2009 US Supplement

OECD CLI Analysis: US, China, Australia, & World 10
The peak rate of decline of the US (consumer), China (manufacturer) and World CLI was in November 2008.
Australia (commodities) decline rate peaked in December 2008.
We anticipate the US CLI bottoming around Qtr 4 2009, with an economic recovery in 1H 2010.
April/May 2009 US Supplement

US House Prices and Supply 11
Months supply of housing may have peaked, with
House prices continue to decline, currently down
current supply slightly less than 13 months.
30% from the 2006 peak.
The rate of decline looks to be stabilising around
19.4% per year.
April/May 2009 US Supplement

US Case/Shiller S&P US 10 City House Prices 12
The 2.2x rise over from 2000 to 2006 is clearly evident, as is the current correction.
The rates of decline (see next page) suggest further declines ahead.
April/May 2009 US Supplement

US Case/Shiller S&P US 10 City House Prices: Annualised % Change 13
This chart shows that all 10 US index cities continue to decline at between -5% and 33% per annum.
It is noteworthy that 4 of 10 city areas have not yet reached their peak decline rates.
April/May 2009 US Supplement

Housing Starts and One-Family House Sales 14
One-family house sales may have stabilised. We
Housing starts look to be stabilising after plunging
look to the coming months for signs of a recovery.
to record lows.
April/May 2009 US Supplement

Consumer Sentiment and Expenditures 15
The rate of contraction in consumer expenditures
Uni Michigan Consumer Sentiment remains very
appears to have stabilised at -2% yoy. Stabilising is
depressed despite last months slight increase.
the first step to recovering, we continue to watch.
Consumer not inclined to borrow and spend…
April/May 2009 US Supplement

Durable Goods Expenditures and ISM Manufacturing Index 16
DG expenditures may be stabilising (in contraction). NAPM PMI achieves two up-months, recovering
from extreme contraction to strong contraction.
We watch for an increase in industrial production
Further confirmation required.
to confirm increasing DG spending.
April/May 2009 US Supplement

Industrial Production & Total Capacity Utilisation 17
TCU following production down. Look for a
Industrial Production continues to plummet,
bottom as signs of recovery.
down 10% year on year.
April/May 2009 US Supplement

Manufacturing: Average Weekly Hours & Overtime 18
Manufacturing overtime hours may have
Average weekly hours manufacturing continues
stabilised. The next two months data will confirm
to fall.
this trend.
April/May 2009 US Supplement

Private Industries: Weekly Hours and Hourly Earnings 19
Average hourly earnings, peaking and ready to
Aggregate weekly hours worked is contracting at
fall. Lower wage growth, fewer hours, bad for
over 5% yoy. Not good for overall employment.
consumer spending.
April/May 2009 US Supplement

Industrial Production & Unemployed less than 5 weeks 20
The number of newly unemployed (less than 5
Industrial Production plummeting, down 10%
weeks) fell for the second month. This may signify
year on year.
an impending recovery in industrial production.
April/May 2009 US Supplement

ISM Non-Manufacturing Index and Services Expenditures 21
Services expenditures remains depressed, growing
The NMF Activity Index has risen well above the
at 0.8% yoy.
late 2008 lows (32). We look for a rise above 45 to
confirm recovery in services.
April/May 2009 US Supplement

ISM PMI/NMF: Historical of New Orders and Production/Activity 22
Good recovery in manufacturing production and new orders and services activity. Only new services business appears
down. Note all 4 series are still contracting, albeit at a slower rate.
April/May 2009 US Supplement

New Orders for Durable Goods and Capital Goods 23
New orders appear to have stabilised, rising from -
DG orders have stabilised at -24%. We look for
24% to -19%. The previous recession shows this
continued rises in the coming months to confirm
series to be quite volatile with further lows
recovery, however further lows are possible also.
possible.
April/May 2009 US Supplement

Unemployment Rate and All Nonfarm Payroll Growth 24
The unemployment rate hit 8.5% in March and
Total private employment growth continues to
continues to climb.
plunge.
April/May 2009 US Supplement

Total Private and Service Employment Growth 25
Private employment growth continues to contract, Service employment continues to contract,
currently at -2.1% yoy. We look for a slowdown in
now at -4.2% year-on-year. Note the close
the rate of decline as evidence of recovery.
correlation with service employment.
April/May 2009 US Supplement

Manufacturing and Construction Employment Growth 26
Construction employment is contracting at -12.5%
DG manufacturing employment is contracting at
reflecting poor conditions. As construction
12%. With high inventories and contracting
employment bottoms after manufacturing, this
spending this is expected to fall further.
sector has further to fall.
April/May 2009 US Supplement

Business Inventory and Inventory-to-Sales Ratio 27
Whilst the general downtrend reflects improved
This month saw a large decrease in business
supply chain management, the recent surge in IS
inventories, down 7% yoy. With the ISRATIO still
ratio is recession induced. Production should
high, there may be further falls ahead.
remain subdued until inventories fall further.
April/May 2009 US Supplement

Personal Savings Rate 28
Private savings continues to rise, currently at 4.5%
Consumer debt growth has ended (0.3% down
from 12.2% in 2004). The lack of credit-fueled
spending is a drag on the economy.
April/May 2009 US Supplement

Consumer Debt and Debt Service Payments 29
Debt servicing remains high at 14% of disposable
Consumer debt growth/expansion has ended.
income. This was sustainable when assets rose
(pre-2006) but is no longer sustainable.
Expect falling debt servicing levels as consumers
save and pay down debt.
April/May 2009 US Supplement

GDP, Consumer Debt and Personal Consumption Growth ($B) 30
Note the correlation between GDP, personal
GDP growth has been less than consumer debt
consumption, and consumer debt. Consumer debt
growth since 2000, proving that the recent boom
is a key driver of consumption along with
was debt fueled.
employment and sentiment.
As consumer debt goes, so goes the economy…
April/May 2009 US Supplement

Consumer and Business Loans 31
Business loans continue to contract at a rapid
Consumer loan growth remains stable. We
pace. This will remain a drag on the economy.
expect to see falling consumer loans in the period
ahead consistent with previous recessions.
April/May 2009 US Supplement

Consumer, Producer and Commodities Price Indexes (Inflation) 32
The Finished Goods index moved moderately into
The CPI is falling slightly below 0% reflecting
contraction slowing 3.2% yoy on slumping
weak economic conditions.
consumer demand.
The All Commodities Index moved heavily into contraction slowing 8% yoy.
April/May 2009 US Supplement

BCM Book of the Month: Meltdown… 33
Meltdown: A Free Market Look at Why the Stock Market
Collapsed, the Economy Tanked, and Government Bailouts
Will Make Things Worse
• Is Capitalism the Culprit?
• The media tells us that \"deregulation\" and \"unfettered free
markets\" have wrecked our economy and will continue to
make things worse without a heavy dose of federal
regulation.
• But the real blame lies elsewhere. In Meltdown, bestselling
author Thomas E. Woods Jr. unearths the real causes
behind the collapse of housing values and the stock market-
-and it turns out the culprits reside more in Washington
than on Wall Street.
• And the trillions of dollars in federal bailouts? Our
politicians' ham-handed attempts to fix the problems they
themselves created will only make things much worse.
• Available on the BCM Website:
– Podcasts
– Book Reviews
– Websites
April/May 2009 US Supplement

Disclaimer, Fair Use, Copyright 34
Disclaimer. Mark Walmsley B.Eng, MSc, MBA is the Business Cycle Monitor editor. The statements, opinions, buy or
sell signals, and analysis presented in this document are provided as a general information and are for news
commentary and educational services only. All opinions, estimates, buy or sell signals, and predictions
expressed herein constitute the judgment of the author as of the date indicated and are subject to change
without notice. The information contained in the newsletter is expressed in good faith, but its accuracy is not
guaranteed. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment
advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment
decision, you are advised to consult your financial planner, broker or other appropriate tax or financial
professional to determine the suitability of any investment. Neither Business Cycle Monitor nor Mark Walmsley
shall be held responsible or have any liability for investment decisions based upon, or the results obtained from,
the information provided.
Fair Use Policy. The BCM Global Monitor is sold to customers for personal use only. BCM considers it ‘fair use’ to
forward one copy of the BCM Monthly to friends, family or associates for the purpose of introducing said
individuals to BCM monthly publications. Such introductions lead to increased subscribership, greater research
resources and a higher quality report. BCM does not consider it ‘fair use’ to repeatedly forward BCM products
to individuals thus circumventing this policy.
Copyright. Copyright 2009. All rights reserved.
Business-Cycle Information. This summary should be read in conjunction with the business cycle articles and
references provided at www.business-cycle-monitor.com. These provide additional information on how the
business cycles functions.
Description and References. Additional information on these indicators, global maps, the simplified economic model
and the sources used in this publication can be found at the BCM website.
www.business-cycle-monitor.com
April/May 2009 US Supplement