Boom or crawl?

Stockbrokers and financial analysts were ecstatic yesterday when the famous Dow Jones stock index for the 30 top companies in the US passed its all-time high and went above 15,000.   It was another landmark in the current rally in financial assets around the globe.   The only way is up – it seems.  The Dow index was at 14,000 just 66 days ago and is now up by 129% since the 2009 trough.  The other US stock index, the S&P-500 reached all-time highs earlier last month.  And the UK index, the FTSE 100, also doing well.  Graphs from Doug Short’s website.


But does this imply that the world capitalist economy is now finally making a significant recovery in growth, investment and jobs after the Great Recession?  Well, the first thing to say is that the US stock market is still in a bear market, despite its recent spectacular rally.  When inflation is stripped out of the equation, the S&P-500 index is up 89% from its 2009 low but it is still 22% below its 2000 peak, which kicked off a bear market in equities that has lasted 13 years and bear markets in the past have lasted anything between 15-20 years
(see my post,


This stock market boom does not reflect an anticipation of sustained economic recovery.  It really indicates the massive amount of credit that has been created by central banks around the world.  The monetary authorities have cut interest rates to near zero, the latest reductions being that of the ECB (-25bp) and Australia’s RBS (-25bp) in the last week.  And the major central banks continue to ‘print’ money through so-called ‘quantitative easing’, the most recent and ambitious being the programme of the Bank of Japan to print as much money as it can to drive up inflation (not growth)!

Most of this credit is not finding its way into the ‘real economy’, however.  Instead it is fuelling a bubble in financial assets, such that even the governments of economies in deep recession, like Italy, Spain or Portugal and Slovenia, can sell their bonds into the market at reduced interest rates (see my post,

While the US stock market explodes upwards, the latest quarterly earnings results of top 500 US companies reveal a less rosy picture.  Sure, corporate profits remain near all-time highs but 44% of US firms reported lower than expected sales, with revenue growth slowing.  Cost-cutting and refusing to invest significantly remains the main way that US companies have sustained high profits.  But corporate profit growth has slowed to a trickle, so stock market investors may be in for a rude awakening soon.

And the story on activity in the real economy is little changed, despite the stock market’s view.  Sure, the UK avoided a ‘triple -dip recession’  according to the data for the first quarter of this year, but real GDP growth is unlikely to be more than 1% this year.  And sure, US jobs growth in April was in line with a trend of slowly reducing unemployment, but mainly through the creation of part-time and temporary jobs.

Actually, the US economy took a slight downturn, according to the measure of business activity I have developed from the US ISM data for manufacturing and services activity.  The combined ISM index shows that the US is still in low-growth mode and, if anything, turning down.


A more high-frequency indicator is that provided by the ECRI.  Their weekly indicator for the US confirms that the low growth mode is in place, although the ECRI  suggests a slight uptick in April.


But what is really interesting is that the world economic activity indicator from Markit PMI dipped in April and is now only just above the 50 threshold for showing economic expansion.  For the first time,  the world PMI score is below that of the US, Japan, the UK and China combined.  It seems that, outside these major economies, the expansion of activity is slowing.  Of course, the Eurozone remains depressed and contracting.


The stock market may be booming, but the world capitalist economy is still crawling.

2 thoughts on “Boom or crawl?

  1. All of what you say in this post looks plausible to me but, could you explain a little bit what is in the ECRI and ISM indices? In former posts you have shown data of profitability in different regions, Europe, Japan, etc. Where do you get the data?

    1. Jose
      Both the ECRI and ISM indices are surveys of business managers on their outlook for various criteria: ordres, prices, employment, production etc. A composite of these becomes the overall index. For more on the US ISM, go to:
      The Markit PMIs do something similar for other countries. See
      The ECRI explains its approach at:

      Profit rates are tricky as you well know, Jose. I get my raw data for various countries from the invaluable Extended Penn World Tables, which I then manipulate into a Marxist measure. Duncan Foley kindly keeps this on his website, see :/a/
      Then there is the European Commission AMECO database that also has raw data for various countries that can be manipulated. See
      And then of course, there are national country data. As you know that’s pretty good for the US and not bad for the UK. After that, we are struggling but it can be made to work. I used all these various sources to construct a world rate of profit last year, which I know would interest you. But ill deal with that in my reply to your recent email.


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