In December, personal income is predicted to increase by 0.3% on a seasonally adjusted basis, according to The Capital Spectator’s average econometric forecast. This marks a decline from the previous month’s gain of 0.6%. The December forecast notably falls short of the estimates provided in three consensus surveys among economists.
The U.S. economy experienced an unexpected contraction in the fourth quarter of 2012, as reported by the government reports. This surprising development caught many analysts off guard, including myself. The GDP declined by 0.1% during the last three months of the year, marking the first negative quarterly comparison since the Great Recession concluded in mid-2009.
According to this morning’s ADP Employment Report, private payrolls rose by 192,000 in January. This figure slightly exceeds December’s increase of 185,000 and represents the most significant monthly gain in nearly a year. Today’s report indicates that job creation is maintaining a stable, if not slightly improved, pace compared to recent months. This bodes well for an optimistic view of the Labor Department’s January payrolls report, to be released on Friday. Additionally, the capacity for moderate economic growth appears intact as we enter the new year, at least regarding job creation as indicated by ADP’s analysis.
While passive asset allocation may not garner accolades nor coverage in major publications, it remains a competitive strategy that consistently offers average to above-average returns compared to a wide array of multi-asset class funds. This observation has been supported through various updates over the years (as noted in last October’s review, for instance). Has the landscape shifted in the last three months? Not significantly. Maintaining a diversified portfolio across the key asset classes continues to challenge many higher-cost active strategies.
Durable goods orders increased surprisingly by 4.6% in December, closing the year on a high note with the largest monthly gain since September. This rise was nearly three times the consensus forecast of 1.6%, as per Econoday’s estimates. A significant portion of this increase stemmed from a sharp rise in aircraft orders, a volatile category that often complicates short-term forecasts for this series. Even when excluding transportation, new orders for durable goods still advanced, albeit at a more modest pace of 1.3%. In contrast, business investment (capital goods orders excluding defense and aircraft) saw a lackluster increase of just 0.2%, suggesting that corporate America remains hesitant to make substantial investments in plant and equipment.
● After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
By Alan Blinder
Interview with author via The New York Times
Q: You write, “Our best hope is to minimize the consequences when bubbles go splat — and they inevitably will.” How confident are you that we will be prepared to contain the damage when the next bubble bursts?
A: I have less confidence than I wish I did. However, I remain hopeful that the lessons learned and actions taken will mitigate the impact of future crises compared to those we’ve previously faced. For instance, we now have a better understanding of the risks associated with high leverage, complex financial instruments, and lax (or non-existent) regulation.
In the upcoming government report next week, fourth-quarter U.S. GDP is anticipated to rise by 2.0%, according to The Capital Spectator’s average econometric nowcast. This represents an increase from the prior nowcast of 1.6% published on January 7. The upward revision is based on several positive economic reports for December released in the last two weeks. The official fourth-quarter data will be disclosed on January 30, when the Bureau of Economic Analysis provides its initial GDP estimate for the last three months of 2012. (All GDP percentage changes refer to real seasonally adjusted annual rates.)
As January’s economic data begins to emerge, the indications so far are largely encouraging. Well, mostly encouraging. There’s some concern regarding the year-over-year change in the unadjusted jobless claims, which have been rising for the second consecutive week. However, the seasonally adjusted figures continue to show a positive trend, suggesting that the alarming increase in raw data may simply be a statistical anomaly rather than a genuine concern. Adding support for optimism is today’s promising gain in the Markit U.S. Manufacturing Purchasing Managers Index (PMI) for January.
Steve Clemons and Richard Vague argue that the crux of the issue largely revolves around debt. They state that the financial crisis and the Great Recession were “primarily caused by a massive private debt buildup,” as outlined in their recent white paper: “How To Predict The Next Financial Crisis.” The authors are scheduled to present at a conference on the subject at the Global Interdependence Center in Philadelphia next month, where they will likely delve deeper into their findings. They make a compelling case linking debt to financial crises; historical patterns support this connection. However, it’s crucial to approach the claim with caution. Attributing debt as the sole trigger for recurrent recessions may be an oversimplification.
The Global Market Index (GMI) is broadening its asset class offerings. As of December 31, 2012, GMI will include foreign REITs and foreign high-yield bonds in its allocations. These two new components will officially debut in next week’s update on asset class returns through January. (For readers who may be unfamiliar with the topic, here’s a link to the latest monthly update on major asset classes and GMI.) The rationale for this change is the availability of ETFs that track these markets, allowing low-cost investment opportunities in non-U.S. REITs and high-yield bonds. When considering their historical performance alongside other asset classes, there is a strategic and tactical advantage to including these new additions in the investment portfolio. Although the correlations to traditional assets remain fairly high, they do not exhibit perfect positive correlation, thus presenting opportunities for enhancing rebalancing benefits, albeit modestly.
### Introduction
The economic landscape in early 2013 has sparked a range of insights and predictions, particularly regarding personal income, GDP growth, and labor market trends. Each piece contributes to a broader understanding of financial health and potential growth trajectories.
### Conclusion
As we look forward, developments in personal income, employment, and durable goods orders are paving the way for expectations in economic growth. Analysts will continue to assess these indicators as they unfold, providing critical insights into the recovery and stability of the U.S. economy.
