Job growth slowed in January, according to ADP. It wasn’t a cataclysmic slowdown, but it’s enough to keep the debate about recession risk bubbling. U.S. nonfarm private sector employment increased by a seasonally adjusted 170,000 last month, according to the ADP Employment Report. That’s down from the 292,000 gain in December. It’s clear that the labor market is still expanding, and that’s one more favorable trend for the optimists. But the magnitude of the downshift is hardly a clear signal of hope about the future. At the very least, the outlook for the business cycle is a bit more hazy in the wake of this report.
A Troubling Trend For Income & Spending Rolls On
American consumers are spending less and saving more. That’s the message in yesterday’s personal income and consumption report for December from the Bureau of Economic Analysis. That’s a healthy development for household balance sheets and, in the long run, it’s a plus for the economy. But if you’re looking for a fresh sign that the economy will avoid a recession, it’s not clear that these numbers will suffice.
A Day In New York…
The personal spending and income report for December is scheduled for release later this morning. The consensus forecast is looking for a rebound after November’s tepid rise. The stakes are high, given the recent deterioration in the trend. I’ll be reviewing today’s numbers from afar, however, as I’m heading off to IMCA’s investment consultant conference in New York. I’ll have a belated reaction to today’s economic news when I return to the normal routine tomorrow.
Another Crossroads For The New Abnormal?
The tight correlation in the last several years between the Treasury market’s inflation outlook and the stock market (S&P 500) has been a reliable barometer of macro conditions in a period that I like to call the new abnormal. As I discussed last October, in normal times, there’s minimal correlation between equity market prices and inflation expectations. Indeed, higher inflation is generally considered troublesome above a certain level… most of the time. But normality gave way in the wake of the financial crisis in late-2008, which brought us a new paradigm. And so, falling inflation expectations, until further notice, are accompanied by falling stock prices; if the trend persists, it leads to a deterioration in macro conditions. This illness will end one day, but not yet. (For the theory behind this empirical fact, see David Glasner’s research paper on the so-called Fisher effect.) Hold that thought as we consider the latest signals from the stock market in the context of inflation expectations and the implications for the economy.
Book Bits For Saturday: 1.28.2012
● The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take
By Bruce Bartlett
Review via The Financial Times
America’s tax system is a mess. It is unfair, poorly understood and riddled with loopholes. It is ill-equipped to raise the revenues needed to deal with the debt crisis, still less the future needs of an ageing population. It is now over 25 years since it last underwent much reform. An overhaul is long overdue. The case for change is presented in The Benefit and the Burden, a succinct, lucid book by Bruce Bartlett, an economist who spent many years in government working for Republican congressmen and in the administrations of Ronald Reagan and George H.W. Bush. In Mr Bartlett’s view, higher tax revenues are needed to stabilise the US’s finances; one of the goals of tax reform should be to make the higher tax burden more bearable. But it will not happen unless there is a much better public understanding of how the tax system works.
US Economic Growth Accelerates Modestly In Fourth Quarter
Another backward-looking economic report dispatched a fresh round of hope today for thinking that a new recession isn’t knocking on our collective doorstep. The U.S. economy expanded at an annual real rate of 2.8% in last year’s fourth quarter, the Bureau of Economic Analysis reports. That’s a respectable bit of improvement over Q3’s 1.8% sluggish pace. Granted, the latest number fell short of the consensus forecast, which called for a 3.1% rise .But it’s hard not to notice that the Q4 GDP still rose at the fastest rate since the second quarter of 2010. Perhaps it’s fair to say we’re slumping toward progress.
December Economic Activity Improved, Chicago Fed Reports
Yesterday’s news that the Chicago Fed National Activity Index (CFNAI) increased last month provides another data point to consider in the debate about recession risk. Looking backward doesn’t necessarily tell us what’s coming, but it’s clear that December’s economic momentum strengthened. January and beyond, of course, are still open to interpretation.
Mixed Message? Jobless Claims & Durable Goods Orders Rise
Initial jobless claims increased last week, but so did new orders for durable goods in December. It’s a mixed bag of news, but a closer look suggests that the economy’s capacity for growth continues to bubble.
The Long, Long Term View Of Interest Rates
Sometimes a picture really is worth a thousand words… and a couple of centuries. Graphing 222 years of U.S. long-term interest rate history isn’t exactly actionable information, but it’s damn interesting just the same. You want perspective? Here it is in spades. Heck, it’s also a great party favor for your next financial mixer. Thanks to Barry Ritholtz at The Big Picture and the primary source, Bianco Research, for this deep dive data dig. The obvious point is that we’re near all-time lows in the long bond. If that doesn’t spark a few thoughts, nothing will.
Estimating GMI’s Ex Ante Risk Premium
Last week, I updated the Global Market Index’s (GMI) relative performance scorecard vs. actively managed asset allocation products. Now it’s time to look ahead.