The market has been on a tear, so what do November’s economic indicators tell us?
J GDP beats: On November 7th we learned that 3rd quarter GDP was better than expected at 2.8%, which of course pushed stocks lower in today’s good is bad and bad is good upside down market.
K Unemployment beats, but in lower paying sectors. On November 8th the U.S. Bureau of Labor Statistics reported that, “Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent. Employment increased in leisure and hospitality, retail trade, professional and technical services, manufacturing, and health care.” Later in the day CNBC reported, “Breaking (11:32AM EST) Europe stocks close lower after US jobs data.” Remember, good news is bad news these days.
J Mortgage delinquency improves: The delinquency rate declines 2.8% in October for mortgages according to Lender Processing Services, making October 2013 10.7% lower than the same period last year. The number of homes entering foreclosure is also down 30% compared to a year ago.
K Borrowing returns: The deleveraging cycle in the U.S. appears to have bottomed out, with household debt rising $127 billion in Q3 to $11.28 trillion, which was the largest increase since the first quarter of 2008. Mortgage balances increased $56 billion and auto loans $31 billion, giving Detroit more cause for optimism. Investment-grade U.S. companies have issued a record of over $1 trillion in bonds so far this year. Keep in mind though as borrowing accelerates, all those bank excess reserves sitting at the Federal Reserve (see chart below) may make their way into the economy, which could result in inflation when the total stock of money in the economy jumps.
K The European Central Bank cut its benchmark interest rate to a record low of 0.25% from 0.5% on November 7th, moving more quickly than expected to stimulate the euro zone economy in the face of falling inflation. Inflation in the euro zone unexpectedly declined to an annual rate of 0.7% in October, well below the E.C.B.’s official target of about 2%, raising concerns of deflation, which many believe would be harmful to the economy.
L Germany’s economy is continuing to improve, while concerns are growing that France may be heading back into a recession and Italy is still floundering. The latter two are unsurprising since much of their economic malaise can be traced to fundamental fiscal problems such as labor laws that make it risky to hire new employees since letting them go (perhaps because they don’t work out or the business doesn’t grow as much as was expected) is frightfully difficult. Many businesses just don’t want to take the risk. Add to that a mountain of red tape that make starting and growing a business attractive only to those who enjoy the idea of continually pounding their head against the wall.
K China appears to still be in expansion mode, but is slowing. Japan’s economy seems to be responding well at the moment to its Central Bank’s policy of continual monetary loosening, with exports posting their largest gain in three years. Looks good for now, but give me a few cups of coffee and a cupcake or two and my engines get revving like nobody’s business. What serves as a kick start can end in an angry digestion and a cranky post-sugar high.
L Emerging market stocks are struggling as whispers of taper talk continue to linger, bringing to mind Don Coxe’s observation that, “Emerging markets are markets you can’t emerge from in an emergency.” Still wary from the last market crash, investors seem to be seeking areas where they think they can escape quickly if there is a rush for the exits. However, emerging market equities are currently priced at more attractive valuations than their developed world counterparts.
J U.S. energy sector rising: Petroleum exports as of July, according to the U.S. Commerce Department, are up 11% year-over-year, which is nearly 10 times the pace of total exports. Imports of petroleum products have dropped 6% year-over-year, which puts the nation back to mid-1990s levels. Oil related imports are now at a record low of 10% of all imports, compared to 12% last year and 15% five years ago.