Land surveying is one of the foremost leading indicators of economic activity. It is a required procedure for most every form of construction. If Target wants to create a new island in their parking lot, it requires a survey. If TransCanada wants to build a pipeline from the Athabasca Oil Sands to Cushing, Oklahoma, it most definitely requires a survey. And let’s not forget about home construction and house sales. This profession is highly sensitive to the economic cycle as these projects often precede a significant capital expenditure and significant time commitment.
I recently spoke with a friend who works for a mid-to-large size engineering and architectural firm and he reports that they have doubled their field ops in the last three months. And although I dislike forming conclusions based on anecdotal evidence, my friend says he has never seen the firm this busy; neither have his colleagues with 20+ years of experience.
I remain a skeptic on the long-term prospects of the economy and I think this is both a function pent-up demand and a new normal type expansion. The bottom line is this: if you thought 1422 on the SPX was not an accurate reflection of the current sentiment of the economy, you were mistaken. In fact, the SPX has significantly more upside potential. Once again, I’ll restate my prediction: new yearly highs on the SPX by mid-May. After today, that is not much of stretch, but that wasn’t necessarily the case two days ago.
Review the chart below. The trend is undoubtedly correlated with the wealth effect; so much so that the indexes have fallen from their peaks in late March. Nevertheless, the long term trend is still higher and, more importantly, the Economic Outlook is higher than the Current Conditions. In fact, those data are still diverging. When those lines begin to converge again–or flatten out–it will be time to consider allocation changes away from equities.