Nice Spate of U.S. Data this Month

December 16, 2013

Fed tapering doesn’t look so risky to investors in bonds and stocks if such is done in response to ample evidence of a recovery that can handle the shift, and that foundation of justification looks stronger at mid-December than in November. 

The labor market has performed better.  Non-farm payroll jobs expanded at least 200K in back-to-back months for the first time since the final two months of 2012.  The jobless rate in November was as low as 7.0% for the first time in five years.  First-time jobless insurance claims in the four weeks to December 7 averaged 328-3/4K, 15-1/4K less than over the prior four months.

Activity has also been more resilient.  A 1.1% increase of industrial production announced today was the largest monthly advance in a year and catapulted the total above the pre-Great Recession high for the first time.  The on-month rise comfortably surpassed analyst expectations.  Retail sales in the first two months of this quarter climbed 0.6% in October and 0.7% in November.  An $18.2 billion rise of consumer credit was 50% greater than forecast.  The Markit Economics-compiled purchasing managers manufacturing index averaged 54.55 in November-December, up from 52.3 in September-October and thus signifying a discernibly faster pace of expansion.  Small business optimism rebounded nearly a full point to 92.5 in November.

Labor productivity growth last quarter was revised upward to an annualized 3.0%, which is considerably more respectable than the prior estimated 1.9% rate.  3.0% was also the fastest advance in fifteen quarters.  Future growth is a function of the size of the labor force and growth in productivity.  The approved budget deal also brightens the first-quarter 2014 outlook by removing the risk of another toxic legislative crisis in January and lessening fiscal drag next year.

Some four and a half years deep into the economic recovery, inflation remains extremely subdued.  Producer price inflation of 0.7% in the 12 months to November was less than forecast.  Import prices contracted 1.5% over the latest reported year, and unit labor costs fell at a 1.4% annualized pace between 2Q and 3Q. 

In the wake of the last FOMC meeting disclosures and Janet Yellen’s confirmation hearings to be the next Fed Chairperson, tapering before March had seems quite unlikely.  That’s no longer the case, but financial markets are not as jittery as they were during this past summer’s initial period of tapering anticipation.  The ten-year Treasury yield of 2.85% has lately shown surprising stability.  The current yield is 15 basis points below the early September peak and just over half as much as the 3.53% average during the first year of economic recovery following the Great Recession.  The Dow Jones Industrial average is meanwhile just 1.2% below its November 27 record closing high.  It was market behavior more than the actual economic data that tilted Fed opinion against starting tapering last September.  That impediment has moved aside.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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