The unsystematic approach [of Wall Street analysts] misses the consistent sequence in which the cycle passes through our business sectors. In every single cycle, momentum starts in retail and consumer spending and then moves to manufacturing and then to capital spending. The research director should review them in that order. These three business sectors – I didn’t mention services, because it’s much harder to measure – are the backbone of corporate profits. Whatever happens to them will also drive the ups and downs in profit growth. And corporate profits, in turn, drive the employment rate, which is the last indicator in the economy to turn.
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