The Chicago Fed National Activity Index (CFNAI) experienced a slight decline in December, settling at +0.02, down from an upwardly revised +0.27 in November, as reported by the Chicago Federal Reserve here. This results in a three-month moving average (CFNAI-MA3) of -0.11, which remains well above the -0.70 threshold that typically signals the onset of recessions. The CFNAI is a composite measure derived from 85 indicators, providing a comprehensive overview of economic activity in the United States.
According to the average econometric forecast from The Capital Spectator, the three-month average of the CFNAI is anticipated to slightly decrease to -0.21 in the December update. This is nearly unchanged from the -0.20 three-month average recorded in November. The general consensus among economists peers a slightly more optimistic reading of -0.09 for December. A CFNAI value below -0.70 indicates an increasing likelihood that a recession has commenced, as noted by the Chicago Fed here.
● The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It
By Peter Temin and David Vines
Summary via Princeton University Press
In this timely and significant book, the authors explore why international financial collaboration is essential to resolving the current global economic crisis. They argue that today’s situation is a disaster comparable only to the Great Depression, detailing historical missteps while emphasizing the necessity for global leadership to restore economic stability and avert future calamities.
Investors with a strategic mindset have two primary avenues to achieve successful outcomes, although there are countless pitfalls. To increase the likelihood of positive results, it’s crucial to concentrate on significant factors influencing investment performance. The first factor is asset allocation. With the rise of ETFs and mutual funds, diversifying across global asset classes has become easier and more cost-effective. The goal? Effective risk management. The second vital component is rebalancing. Together, these strategies create a potent combination. By maintaining a diverse portfolio, you can capitalize on price fluctuations, which are essential for securing rebalancing gains. However, before proceeding, ask yourself: Are you confident in your ability to outperform the professionals on your own?
In December, new residential construction surged beyond expectations, achieving a notable 12.1% increase (seasonally adjusted annual rate). Many analysts, including myself, had anticipated a more modest growth rate of around 3% — as I noted yesterday. The key takeaway here is that the housing recovery remains on a solid trajectory, as evidenced by today’s compelling reports.
Strategic Asset Allocation: The Global Multi-Asset Market Portfolio 1959-2011
Ronald Doeswijk (Robeco), et al.| November 2012
The portfolio composition of the average investor serves as valuable data for strategic asset allocation. This portfolio reflects the relative values of all assets according to market consensus, which may be viewed as a benchmark for the optimal portfolio for the typical investor. We assess the market values of equities, private equity, real estate, high-yield bonds, emerging-market debt, non-government bonds, government bonds, inflation-linked bonds, commodities, and hedge funds. For this range of assets, we estimate the global market portfolio invested during the period from 1990 to 2011. For key asset categories, such as equities, real estate, and bonds, we extend our analysis back to 1959. To our knowledge, we are the first to document the global multi-asset market portfolio at such a granular level over an extended period.
Industrial production rose by 0.3% in December, surpassing earlier estimates. However, the overall forecast for a slowdown in growth for the month proved accurate. This is not surprising in light of the significant 1.0% increase in November, mainly attributed to a temporary rebound following weather disruptions caused by Hurricane Sandy in October. Overall, industrial activity continues to expand at a moderate pace. The December report contributes positively to the year-end economic landscape. With this update, it’s easier to argue that the economy wrapped up 2012 on an upward note. Nonetheless, the latest industrial data also introduces new considerations for analyzing January’s figures and beyond.
New housing starts in December are projected to rise by 3.1% on a seasonally adjusted monthly basis, according to the average econometric forecast from The Capital Spectator. This comes on the heels of a 3.0% decline reported previously. The forecast aligns closely with the consensus views among economists.
Initial jobless claims are anticipated to decrease slightly in tomorrow’s weekly report, according to The Capital Spectator’s average econometric forecast. New claims for the week ending January 12 are expected to fall to 369,000 on a seasonally adjusted basis, down from the previously reported 371,000. This estimate aligns with the consensus forecasts gathered from economist surveys.
Retail sales surpassed expectations, increasing by a solid 0.5% in December (seasonally adjusted), as per reports from the Census Bureau . When excluding gasoline sales, retail purchases rose even more sharply, climbing by 0.8% for the month. Year-over-year figures are also promising, with retail sales growing by 4.7% for the twelve months leading up to December, up from November’s annual rate of 4.1%. The key takeaway is that retail activity closed 2012 on a high note, debunking earlier predictions that the economy would falter into a new recession.
### Conclusion
The economic indicators presented illustrate a mixed but cautiously optimistic outlook for various sectors, including residential construction, retail sales, and industrial production. As these trends unfold, they offer insights into the general health of the economy as it transitions into the new year. Observers and investors alike will be watching closely for further developments that could influence future economic activity.
