Last week: The Conference Board Leading Economic Index® for the U.S. is pointing to continued economic expansion this spring and perhaps through the summer. That’s the view from the Federal Reserve as well. And one more confirming signal could come this week with a pick up in the ordering rate. Next week, the latest reading on sentiment will show whether average consumers agree with the professionals. The three big concerns on all sides: 1) Are higher prices for food and energy a speed bump or a big hurdle? 2) Is job growth really going to pick up? 3) Are incomes going to start rising a little faster? Consumers will be encouraged by more income. Business, which has spent so much time and effort reducing costs, will not look favorably on rising costs.

THE SITUATION ABROAD

The global economy appears to be busy in the first half of 2011, stepping up production to restock inventory. Data on new orders, purchasing managers, and industrial production suggest output and exports are rising around the developed world and will very likely continue through late winter and early spring. Less clear is whether the service sectors of these economies are also gaining some momentum. While there are some indications that service-sector growth is picking up, the acceleration is not very robust, and certainly not uniform across the globe. How much growth, how soon, and where, are key questions as to the strength and sustainability of the expansion. Meanwhile, questions about higher prices for food, energy, and metals continue to worry markets and policy makers.

FACT OF THE WEEK

1.4 percent. Events in Tunisia and Egypt have shaken up the Middle East. Political crises aren’t the only thing shaking up this region. The population is rising (more than half of the population of these countries is under the age of 25) with no significant increase in water supplies. The region accounts for a mere 1.4 percent of the globe’s fresh water. In fact, 12 of the world’s 15 most parched countries are in the Middle East. Moreover, the most water-rich countries are Iran, Iraq, Syria, and Turkey. In short, the new regimes will struggle to deal with rising population, constrained water supply, and shrinking energy revenue as reserves continue to dip, even if prices do not.

QUESTION OF THE WEEK

Which resource is more likely to short-circuit economic growth over the next generation — not enough energy or not enough water?

The global population is growing by a little more than 1 percent right now, and the global economy is growing by about 4 percent. Extend these trends over the next few decades and one can see how the availability of energy and/or water could slow economic growth. Recent finds of natural gas (and new technology allowing the exploitation of previously unprofitable fields) have reduced the danger of running out of supply somewhat. Solar and wind power further advance energy availability.

It would seem the bigger problem is supply of water. Increases in the supply of fresh water are less promising while demand (industrial, agriculture, and household use) is inexorably increased by population and economic growth. In fact, it takes water to produce both fossil and renewable energy.

“Water, water everywhere – nor any drop to drink.” Water usage in the developed world is significantly higher than usage in the developing world. The problem with that is that economic growth is two to three times faster right now in the developing world and that could continue for a decade and perhaps longer. Why would the earth, a planet covered in water, have not enough to sustain economic development? 97.5 percent of the water is salt water, unusable in that form for agricultural, industrial, or household use. Perhaps one of the growth industries of the future could be desalinization. Perhaps.