June 18, 2013
Housing Starts In May Rebound After April's Sharp Correction
New residential construction in the US increased last month to a seasonally adjusted annual rate of 914,000, which is nearly 7% higher than April’s count. Meanwhile, newly issued building permits declined 3.1% in May to a seasonally adjusted 974,000 annual pace vs. the previous month. Nonetheless, the housing recovery is still very much alive and kicking. But today’s numbers are a reminder that growth is probably slowing, which is only natural as new supply moves in line with demand. The last year or so has been about playing catch-up with demographics, but the big adjustments are probably behind us. The cycle for housing construction, in other words, is maturing.
June 17, 2013
US Housing Starts: May 2013 Preview
Housing starts are expected to total 929,000 in tomorrow’s update for May, based on The Capital Spectator's average econometric forecast (seasonally adjusted annual rate). That’s a moderate increase vs. the previously reported 853,000 for April. Meanwhile, The Capital Spectator's average projected gain for May is slightly below the numbers in several consensus forecasts drawn from surveys of economists.
US Economic Profile | 6.17.13
Economic news in recent months has been somewhat mixed, but the broad trend continues to look encouraging. The May profile of the economy, using the numbers published so far, shows few signs of stress, based on today’s update of The Capital Spectator's Economic Trend Index (ETI) and Economic Momentum Index (EMI), which are comprised of 14 economic and financial indicators. As a result, business cycle risk remains low and so it's unlikely that the NBER will eventually declare May as the start of a new recession, as suggested by the current data sets available.
June 15, 2013
Book Bits | 6.15.13
● Keeping Up with the Quants: Your Guide to Understanding and Using Analytics
By Thomas H. Davenport and Jinho Kim
Summary via publisher, Harvard Business Press
Welcome to the age of data. No matter your interests (sports, movies, politics), your industry (finance, marketing, technology, manufacturing), or the type of organization you work for (big company, nonprofit, small start-up)--your world is awash with data. As a successful manager today, you must be able to make sense of all this information. You need to be conversant with analytical terminology and methods and able to work with quantitative information. This book promises to become your "quantitative literacy" guide--helping you develop the analytical skills you need right now in order to summarize data, find the meaning in it, and extract its value. In "Keeping Up with the Quants," authors, professors, and analytics experts Thomas Davenport and Jinho Kim offer practical tools to improve your understanding of data analytics and enhance your thinking and decision making.
June 14, 2013
Industrial Output Unchanged In May
Industrial production was flat last month, falling a bit short of expectations. Although it’s clear that the industrial sector has suffered a slowdown lately, today’s update was at least mildly upbeat in the sense that output in May rebounded slightly from April’s 0.4% drop. The manufacturing component fared a bit better, posting a 0.2% increase last month, the first gain since February.
June 13, 2013
US Industrial Production: May 2013 Preview
Tomorrow's report on industrial production for May is projected to post a 0.2% gain, based on The Capital Spectator's average econometric forecast (seasonally adjusted). The expected increase is modest, although it represents a substantial rebound vs. April’s 0.5% decline. Meanwhile, the Capital Spectator’s average projection for May is at the upper range of expectations relative to three consensus forecasts based on surveys of economists.
Two Economic Updates, Two More Reasons For Optimism
A pair of economic reports out today offer another dose of data for thinking that modest growth will continue to dominate the macro outlook for the foreseeable future. Retail sales rebounded handsomely last month after a weak gain in April. Meanwhile, initial jobless claims dropped by a robust 12,000 last week to a seasonally adjusted 334,000, which is close to a five-year low. Business cycle risk, in short, still looks contained.
Financial planner Carl Richards advises that "what you don’t know about your portfolio may help you." He laments that watching the market has become a "spectator sport" and that obsessing over the daily or even minute-by-minute fluctuations isn't all that useful for most investors; in fact, there's a good case for arguing that this behavior probably reduces performance. "Knowing doesn’t help," he writes.
June 12, 2013
Macro-Markets Risk Index | 6.12.2013
A markets-based profile of US economic conditions has deteriorated in recent weeks, although business cycle risk still looks low from an historical perspective. The Macro-Markets Risk Index (MMRI) closed yesterday (June 11) at 10.5%. That’s down sharply from 16%-plus levels reached last month. Even after the recent decline, MMRI remains well above the danger zone of 0% and within the roughly 10%-to-17% range that's prevailed so far in 2013, albeit at the bottom of this year's range. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.
US Retail Sales: May 2013 Preview
Tomorrow’s update on US retail sales for May is projected to increase by 0.6% vs. the previous month, according to The Capital Spectator's average econometric forecast. That compares with a 0.1% gain reported by the Census Bureau for April. Meanwhile, the Capital Spectator's average projection for May is slightly higher than forecasts based on recent surveys of economists.
June 11, 2013
Looking For Macro Policy's Sweet Spot
How can both sides be right and wrong at the same time? Well, it's economics, for a start. And if we're talking of the dismal science, then timing is a factor too. No wonder that the debate about austerity, which has been called everything from "the greatest bait-and-switch in history" to the only path to enlightened policy because "spending cuts can improve both the budget and the economy."
June 10, 2013
What's The Message In The Ongoing Slide In Inflation Expectations?
It's still a mystery… for now. The sharp divergence between rising stock prices and falling inflation expectations has persisted since February. It's unclear what this striking uncoupling means, but surely it signals a change of one sort or another for monetary policy, the macro trend, the capital markets... all of the above? For now, the only point of clarity is that equities are no longer joined at the hip with changes in the market's outlook for inflation. It's the end of the new abnormal, the positive link in recent years between stocks and inflation expectations, based on the yield spread between the nominal 10-year Treasury and its inflation-indexed counterpart. The question is what comes next?
June 8, 2013
Book Bits | 6.8.13
● Fate of the States: The New Geography of American Prosperity
By Meredith Whitney
Review via ChiefExecutive.net
In the course of U.S. economic cycles, geography played a key role in the rise and fall of regional economies. This is no longer true. In today’s economy where all most businesses need is access to high-speed data networks, proximity to airports, an interstate and a college-educated labor pool, there’s no physical reason why Boeing cannot build airplanes in South Carolina instead of Washington State. Financial analyst Meredith Whitney, who made a name for herself for spotting the subprime mortgage crisis a year before it happened, forecasts a major economic shift in her recent book, Fate of the States: The New Geography of American Prosperity. “Voters and communities are starting to realize just how closely tied their personal economic well-being is to their communities’ fiscal well-being,” she writes. “Voters in mismanaged states, the ones now flushing away jobs, are rising up and putting their feet down. Unemployed workers are packing up their families and relocating to low-tax, non-budget-crunched states like Texas and North Dakota in order to find work.”
June 7, 2013
Same Old, Same Old: Modest Growth For The Labor Market
If May is a tipping point that leads to nasty things for the business cycle, it’s not obvious in today’s payrolls report from the Labor Department. Although quite a lot of ink has been spilled in recent weeks about weak numbers from certain sectors in the economy, it appears to be business as usual with jobs creation. Slow growth, in short, continues to persist.
June 6, 2013
A Modest Drop In Last Week's Unemployment Filings
Jobless claims fell for the week through June 1, slipping 11,000 to a seasonally adjusted 346,000. That leaves the number of claims close to middling relative to the range for the last several months. Although the new filings have been moving sideways lately, it’s still encouraging that this series isn’t moving higher in the wake of wobbly data in other economic news.
Asset Allocation & Rebalancing Review | 6 June 2013
In the previous edition of Asset Allocation & Rebalancing Review I noted that the great divergence in returns in 2013 rolled on. But gravity has since reasserted its authority. There’s still a wide range of returns on a year-to-date basis for the major asset classes, but the range has been squeezed recently.
US Nonfarm Private Payrolls: May 2013 Preview
Private nonfarm payrolls are expected to increase by 155,000 in tomorrow's May update from the Labor Department, based on The Capital Spectator's average econometric point forecast. The projected gain is moderately lower than the reported increase for April and below a pair of consensus forecasts for May, based on two surveys of economists.
June 5, 2013
ADP: Slow Growth In Payrolls Persists In May
The pace of growth in private-sector payrolls picked up a bit last month, according to today’s ADP Employment Report. The modest improvement is enough to assume that May’s full economic profile, once all the numbers are published, will reflect more of what we’ve seen lately: a sluggish but still positive rate of expansion. But expecting something better continues to require a level of confidence that’s not supported in the numbers.
The Rock, The Hill, & Every Investor's Burden
What are the odds of getting it right? Tougher than it seems. Maybe that's why there's a widespread tendency to assume that asset allocation doesn't require much analysis or monitoring. Some folks take this to the extreme and decide that asset allocation isn't all that important after all (even if quite a lot of research tells us otherwise). But what you own and when you own it, and how much of it sits in your portfolio, counts for a lot, as my current profile of the major asset classes reminds. The problem is that there are a lot of moving parts to researching, building and maintaining a diversified portfolio and so getting it all right is, well, let's just say it's challenging.
June 4, 2013
Mr. Market’s Global Bond Market Allocations
Last week I sliced up the allocations for the global equity markets as of May 31, and today I do the same for fixed-income. But first, the standard caveat. Categorizing the global bond market’s components is tricky. Equities, by contrast, are relatively transparent. For simplicity, I'm streamlining the fixed-income analysis, although no one should confuse the numbers below as the last word on the global bond market mix. For instance, I'm leaving out US munis and collateralized debt.