Jobless claims dropped substantially last week, near the lowest level in almost five years. Meanwhile, retail sales rebounded in November. In short, we have two more economic updates that support the case for expecting modest economic growth in the near future.
More Of The Same… With “Thresholds”
Fed Chairman Ben Bernanke made it clear… again. Interest rates will remain low, even when the labor market shows stronger signs of growth. He said that if inflation doesn’t exceed an annual rate of 2.5%, and unemployment stays above 6.5%, the Fed would keep its target rate near zero percent. Laying out “thresholds” is something new, but the basic message remains the same: low rates and no plans to change the status quo any time soon.
Stress-Testing Forecasts For Tomorrow’s November Retail Sales Report
Will tomorrow’s retail sales update for November bring pain or pleasure for the increasingly delicate and high-stakes art/science of deciding where the business cycle’s headed? October’s report was somewhat sobering, thanks to a 0.3% drop in consumption—the first since June. Some of the weakness was blamed on Hurricane Sandy. If so, will November’s numbers bounce back after a month of relatively clear skies? Yes, according to the consensus forecast, which projects a handsome 0.4% rise, according to Briefing.com. Sounds good, but that’s a bit high relative to a pair of econometric models I routinely use for additional context when considering where the data’s headed.
Research Review | 12.11.2012 | Dividend Yield & Equity Returns
Dividend Yields, Dividend Growth, and Return Predictability in the Cross-Section of Stocks
Paulo Maio and Pedro Santa-Clara | Nov 2012
There is a generalized conviction that variation in dividend yields is exclusively related to expected returns and not to expected dividend growth — e.g. Cochrane’s presidential address (Cochrane, 2011). We show that this pattern, although valid for the stock market as a whole, is not true for small and value stocks portfolios where dividend yields are related mainly to future dividend changes. Thus, the variance decomposition associated with aggregate dividend yields (commonly used in the literature) has important heterogeneity in the cross-section of equities. Our results are robust for different forecasting horizons, econometric methodology used (direct long-horizon regressions or first-order VAR), and also confirmed by a Monte-Carlo simulation.
U.S. Economic Trend Update | 12.10.12
Thinking positively about the economy isn’t getting any easier these days. From worries about fiscal uncertainty in Washington to fears that America’s long-run growth prospects have been impaired, the case for pessimism is in full swing in the final days of the year. The rear view mirror for economic data, however, suggests that the game isn’t over yet, as today’s update of The Capital Spectator Economic Trend Index (CS-ETI) reminds.
Book Bits | 12.8.12
● Do You Need a Financial Adviser?
By Mark Nind
Summary via publisher, Memoir Publishing
While most financial advisers offer a valuable service to their clients, many people have stories about those who failed to understand their needs or were ignorant of useful products or important legislation. Yet blundering on without seeking the right advice can prove extremely costly. Mark Nind has worked in financial services for most of his working life and has seen the perils and pitfalls of investment planning from the points of view of the bank, the independent adviser and the customer. In this book he explains the financial adviser’s role clearly and objectively and gives valuable tips about when you should seek advice about what to do with your money, where you should go for it and how you should use
Private Payrolls Rise More Than Forecast In November
Private payrolls increased by 147,000 last month on a seasonally adjusted basis, the Labor Department reports. That represents a considerably slower rate of growth from October’s revised 189,000 jump, but today’s number beat expectations by a comfortable margin. The consensus forecast compiled by Briefing.com, for instance, projected a lesser gain of 120,000. Meanwhile, the jobless rate reportedly fell to 7.7%. I don’t pay much attention to this number—payrolls data is more informative for business cycle analysis. Nonetheless, it’s hard not to notice that unemployment slipped to the lowest level in nearly four years. There’s a lot of debate about the relevance of the unemployment numbers, but to the extent that this data tells us anything it’s the direction of the trend, and for now that seems to be moving in a productive direction: down.
Technical Analysis & Financial Advisors
More financial advisors are using technical analysis in their money management travels these days, including asset allocation. In the new issue of Financial Advisor, I profile the trend and ask some wealth managers why and how they’re using TA: (Re)Discovering Technical Analysis.
Jobless Claims Fall To Pre-Hurricane Levels
New filings for jobless benefits fell again last week, offering another statistical talking point to argue that the dramatic surge in new claims for the week through November 11 was a temporary effect from Hurricane Sandy. Since then, claims have dropped for three consecutive weeks. The overall decline in the last three reports is substantial, pushing last week’s claims data down to the range that prevailed before the storm hit, albeit on the high side of the pre-storm range. But for now, there’s quite a bit more confidence for asserting that the claims numbers again suggest that slow growth for the labor market remains a reasonable outlook.
Dueling Forecasts: ISM Manufacturing & Services Indexes
Yesterday’s update on the ISM Services Index delivered a positive counterpoint in the November estimate vs. the discouraging slide in the ISM Manufacturing Index. One of the indicators is feeding us misleading signals about the business cycle. The manufacturing index is warning, albeit mildly, that the economy is weakening. But the services data begs to differ.