The Service Economy Peril.

The chart above is that of the Consumption of Services expressed
as percentage of the Personal Consumption Expenditure.

Notice how the over all trend has been upward. This means that a
larger proportion of nominal spending has been going to services.


The chart above shows the percentage of jobs, from the total,
that are service-related. Note also how this percentage has
been trending up to commensurate with spending in services.


The green line illustrates the relative performance of the
Service Consumption price-index to the Non-Durable
Consumption price-index.

This relative performance has also been to the up-side as
shown by the black trend-line.

Inflation is a transfer of wealth. It is usually associated with
prosperity for the beneficiaries of the price increase. Saudi
Arabia does not complain of rising oil prices. Neither does
Chile, when copper costs more.

It is easy to conceive how employment increases more easily in
industries benefiting from price inflation. This factor explains
to a large degree, why the Service Sector of the economy has
enjoyed relative out-performance in job creation.

Notice, however, how the Service price-index is losing
ground with respect to the Non-Durable price-index(green line).

The obvious culprit is the increase in food and energy prices
that heavily influence the Non-Durable Consumption.
See here.

As more of the nominal spending is diverted away from the
Service Sector (to the Non-Durables), this trend in prices will
be re-enforced. Competition -brought about by many years of
attractive price environment- will deprive the Service Sector
from pricing-power, as increases in costs take place.

Then the sector providing the greatest employment will come
under pressure and job losses will follow.

The disproportion of jobs held in Services create an enormous risk
to our economy. The potential for deflation is real and being
sensed by bond markets around the world.


IB = Intraday Behavior. PM = Price Momentum.

For Monday (12/3), the Up/Down Indicator is .55, suggesting
a positive bias for the Stock Market.

Despite this bias, I think the market will end lower tomorrow.

The Interval = 10 S&P points. Use 15 with increased volatility.