Private payrolls increased by 192,000 in January, according to this morning’s ADP Employment Report. That’s a bit stronger than December’s 185,000 gain and it’s the best monthly pop in nearly a year. Today’s release tells us that jobs creation remains at a stable, if not slightly better pace relative to the trend in recent months. In turn, that sets us up for thinking positively about Friday’s January payrolls report from the Labor Department. Meanwhile, it seems that the economy’s capacity for moderate growth appears to be intact in the new year, at least as far as jobs are concerned via ADP’s analysis.
Category Archives: Uncategorized
Asset Allocation & Rebalancing: (Still) Competitive Together
Passive asset allocation will never win any awards or front-page profiles, but it’s a competitive strategy that quietly and consistently delivers average to above-average performance relative to a broad spectrum of multi-asset class funds. That’s been the message through the years, as noted in the periodic updates on this front (see last October’s review of the numbers, for instance). Has anything changed three months later? Not really. Owning a wide selection of the major asset classes continues to give the majority of higher-priced active strategies a run for their money.
Durable Goods Orders Post A Surprisingly Strong December Gain
Durable goods orders increased by a surprisingly strong 4.6% in December, closing out the year with the highest monthly gain since September. The increase was nearly three times above the consensus forecast of 1.6%, based on Econoday’s estimates. Much of the gain was due to a sharp rise in aircraft orders, a volatile component that often trips up many short-term predictions for this series. Excluding transportation, new orders for durable goods still advanced, but by a considerably lesser 1.3% pace. Business investment (capital goods orders less defense and aircraft), by contrast, increased a tepid 0.2%, which suggests that corporate America’s appetite for laying out large sums of money for plant and equipment remains sluggish.
Book Bits | 1.26.13
● 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 much confidence do you have that when the next bubble goes splat, we will be ready, willing and able to contain the damage?
A: Less than I wish I had. But I’m at least hopeful that some of the lessons we’ve learned, and some of the actions we’ve taken, will make the next bubble less damaging than the last ones. For example, we now understand better the dangers that lurk in high leverage, overly complex financial instruments, and lax (or nonexistent) regulation.
Q4:2012 US GDP Nowcast Update | 1.25.2013
Fourth-quarter US GDP is expected to increase 2.0% in next week’s initial report from the government, according to The Capital Spectator’s average econometric nowcast. That’s up from the previous 1.6% nowcast published on January 7. The higher nowcast reflects several upbeat economic reports for December data that have been published over the last two weeks. The official Q4 data is scheduled for release on January 30, when the Bureau of Economic Analysis will publish its initial GDP estimate for the last three months of 2012. (All GDP percentage changes cited are quoted as real seasonally adjusted annual rates.)
A New (Temporary?) Glitch In The Jobless Claims Data
The January economic data is starting to trickle in, and so far the signals are encouraging. Well, mostly encouraging. There’s a question about the year-over-year change in unadjusted jobless claims, which are posting an increase for the second week in a row. But the seasonally adjusted numbers are still trending positive, and so the warning in the raw data may be a statistical quirk rather than a genuine warning. Supporting the case for optimism for the first month of the new year so far is today’s strong gain in the Markit US Manufacturing Purchasing Managers Index (PMI) for January.
Debt & The Business Cycle: A Useful But Incomplete Explanation
Steve Clemons and Richard Vague tell us that it’s all, or at least mostly, about debt. The financial crisis and the Great Recession were “caused primarily by a massive private debt buildup,” they write in a recent white paper: “How To Predict The Next Financial Crisis.” The authors will be speaking next month at a conference on the topic at the Global Interdependence Center in Philadelphia and presumably they’ll lay out the evidence in some detail. They’re certainly on solid ground when they link debt with financial crises. History is quite clear on this point. But let’s be careful here. Citing debt as the main catalyst that routinely triggers recessions across time is surely going too far.
Two More Betas For The Global Market Index
The Global Market Index (GMI) is expanding its asset class horizons. Starting with the numbers as of December 31, 2012, GMI’s allocations will add foreign REITs and foreign high-yield bonds to the mix. Next week, when I publish the monthly update on asset class returns through January, these two betas will make their formal debut. (For new readers who are wondering what I’m talking about, here’s the latest monthly update of the major asset classes and GMI.) The reasoning behind this change is that the arrival of ETFs that track these markets makes it easy and cost-efficient to allocate to non-US REITs and high-yield bonds. Considering the history of these markets in context with other asset classes, there’s also a strategic/tactical argument for adding foreign REITs and foreign high-yield bonds to the investment opportunity set. The correlations between the new additions and the usual suspects is still fairly high, but it’s well short of perfect positive correlation. Accordingly, there’s opportunity in these betas for enhancing the rebalancing bonus, if only on the margins.
Chicago Fed Nat’l Activity Index: US Economy Ended 2012 With Modest Growth
The Chicago Fed National Activity Index (CFNAI) slipped marginally to a monthly reading of +0.02 in December from an upwardly revised +0.27 in November, the Chicago Federal Reserve reports. Today’s update translates to a three-month moving average (CFNAI-MA3) of -0.11, or comfortably above the -0.70 level that’s considered to be the tipping point for the onset of recessions. CFNAI, a weighted average of 85 indicators, is designed as a benchmark of US economic activity broadly defined.
Chicago Fed Nat’l Activity Index: December 2012 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decline incrementally to -0.21 in tomorrow’s December update, according to The Capital Spectator’s average econometric forecast. That’s virtually unchanged from CFNAI’s -0.20 three-month average for November. The consensus forecast of economists calls for a slightly higher reading of -0.09 in the December report. A value below -0.70 indicates an “increasing likelihood” that a recession has started, the Chicago Fed advises.