The US economy grew a bit faster in September, according to today’s delayed update of The Chicago Fed National Activity Index, a macro benchmark based on 85 indicators. “The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero,” the Chicago Fed reports. Although the expansion remains a touch “below trend,” as indicated by CFNAI-MA3’s marginally negative value, the current -0.03 level is the highest since February. That’s a sign that economic growth, while still moderate, shows no imminent signs of deterioration, or so the September numbers suggest.
Research Review |11.12.13 | Managing & Measuring Volatility
Restoring Value to Minimum Variance
Lisa R. Goldberg (University of Calif., Aperio Group), et al. | Oct. 2013
A long-only investable minimum variance strategy outperformed the S&P 500 over the four decades from January 1973 to December 2012. Through the lens of a factor model, we show this outperformance can be largely attributed to implicit style bets. Specifically, minimum variance has thrived by tilting away from size and volatility and toward value. As funds have poured into minimum variance in the wake of the financial crisis, and plausibly as a consequence of this trend, the value tilt has disappeared and a momentum tilt has emerged. This suggests that the cost of entry to minimum variance is at an historic high. We show how the value tilt can be restored to minimum variance by targeting specific exposures, and that there was a substantial long-term benefit to the restoration at most recent points of entry to the strategy.
No Sign Of Tapering In Base Money Supply Data
The inflation-adjusted year-over-year pace in so-called high-powered money—M0, as some label it—is rising at the fastest rate since 2009, when the Federal Reserve was winding down its initial monetary response to the Great Recession. The news that the growth in base money–a slice of money supply that the Fed controls directly–is accelerating arrives during a new round of chatter that the central bank will soon begin tapering its asset-buying program in the wake of last week’s upbeat economic reports. Some analysts now predict that a tapering announcement could come as early as next month, at the next FOMC policy meeting. Maybe, although a new Bloomberg survey advises that economists overall expect that the March 2014 meeting is the more likely date for a change in the monetary weather. Meanwhile, there’s nary a hint of tapering in the latest base money data. In fact, it looks like monetary policy stimulus is becoming more aggressive, or so the current numbers show.
Chicago Fed Nat’l Activity Index: Revised Sep 2013 Preview
Recession risk is projected to remain low, according to the revised projection for the three-month average of the Chicago Fed National Activity Index (CFNAI). This benchmark of the business cycle is expected to increase slightly to -0.14 in tomorrow’s delayed update for September, according to The Capital Spectator’s average econometric forecast. Today’s revised estimate incorporates new data that’s been published since last month’s government shutdown ended, although the current outlook is essentially unchanged from the earlier forecast for tomorrow’s September release.
Book Bits | 11.9.13
● White-Collar Government: The Hidden Role of Class in Economic Policy Making
By Nicholas Carnes
Essay by author via NewsObserver.com
On both sides of the aisle, the vast majority of our lawmakers come from the most privileged slice of American society. If Barack Obama, John Boehner, Nancy Pelosi, Harry Reid and Mitch McConnell sat down to talk about how to solve the budget impasse, no one at the table would have a net worth under $1.7 million.
And they aren’t alone. Working-class jobs – manual labor and service-industry positions – make up a majority of our labor force, but people from those kinds of jobs make up less than 2 percent of Congress. Meanwhile, millionaires – who make up less than 5 percent of the country – control all three branches of the federal government: They have a majority in the House, a filibuster-proof supermajority in the Senate, a 5-4 majority on the Supreme Court and a man in the White House.
The Status Quo Below The Headlines
Today’s updates on nonfarm payrolls and personal income & spending beat expectations, but when you look beyond the monthly comparisons it’s not obvious that the numbers have broken free of their recent bias for slow-to-modest growth. But let’s start with the crowd’s standard obsession: headline data, which is to say the month-over-month comparisons. Private-sector payrolls increased by substantially more than expectations, rising 212,000 in October, or nearly double the consensus forecast. Meantime, personal income in September jumped 0.5%, a sizable margin over the 0.3% prediction by economists overall. Personal consumption expenditures, however, fell in line with the consensus view and advanced by a tepid 0.2%. On the surface, two healthy upside surprises and one decent gain look like a big win and perhaps a game-changing day if you were expecting darker data. But as we’ll see, putting today’s numbers in perspective suggests that nothing much has changed.
Personal Consumption Expenditures: September 2013 Preview
Personal consumption spending for September is projected to rise 0.3% vs. the previous month in tomorrow’s delayed update from the government, based on The Capital Spectator’s average econometric forecast. Today’s average projection matches the previously reported 0.3% increase for August. Meanwhile, the Capital Spectator’s average 0.3% forecast for September is at the upper range of several consensus predictions based on surveys of economists.
US Nonfarm Private Payrolls: October 2013 Preview
Private nonfarm payrolls in the US are projected to increase by 133,000 (seasonally adjusted) in tomorrow’s October update from the Labor Department, according to The Capital Spectator’s average econometric point forecast. The projected gain is slightly higher than the reported increase of 126,000 for September. Meanwhile, The Capital Spectator’s average October projection is slightly higher than a pair of consensus forecasts, based on surveys of economists.
Q3 GDP Delivers An Upside Surprise
The US economy picked up speed in the third quarter, or so today’s initial estimate of Q3 GDP shows. The economy expanded by 2.8% in the three months through September vs. the previous quarter, based on a seasonally adjusted annualized real rate. That’s quite a bit better than the consensus forecast of 2.0% and The Capital Spectator’s 2.1% average econometric nowcast. The faster pace of growth in Q3 was driven largely by “a deceleration in imports and accelerations in private inventory investment and in state and local government spending,” according to the Bureau of Economic Analysis. But it’s unclear if this is a sign that the economic growth will continue to improve. For one thing, consumer spending remains tepid, according to today’s report. Still, it’s hard to argue that the economy is slowing via the data du jour. In a separately released report today, new filings for jobless benefits dropped again last week. Overall, today’s news reinforces the message that the economy continues to grow at a moderate pace with minimal signs of distress on the immediate horizon.
Macro-Markets Risk Index: 12.2% | 11.07.2013
The US economic trend has rebounded in early November after slumping during the past two months, according to a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 12.2% on Wednesday, Nov. 6—a level that suggests that business cycle risk remains low. One interpretation of the benchmark’s revival is that it reflects optimism that the end of last month’s government shutdown removes a weight on the economy. The current 12.2% value is nearly twice as high as the lowest reading for the year to date—7.5% posted in mid-September—and comfortably above the 0% danger zone. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.