In November, a presidential election cleared up a few ambiguities for Wall Street; an oncoming fiscal cliff presented many others. Anxiety was prevalent, yet the S&P 500 managed to gain 0.29% for the month. The latest economic indicators were encouraging enough to distract investors from worries about 2013. Many of the major global indexes advanced in November; some key commodities retreated. The latest reports showed our manufacturing sector contracting and household spending declining. News out of Europe and China was less troubling than in past months.1
DOMESTIC ECONOMIC HEALTH
Personal spending fell 0.2% for October, 0.3% when adjusted for inflation, the first downturn since June. Incomes were flat for the first month since April. Perhaps this development wouldn’t be repeated in November, as the International Council of Shopping Centers estimated that chain store sales during Thanksgiving week were 3.3% improved from a year ago.2,3
U.S. manufacturing contracted: the Institute for Supply Management’s November manufacturing PMI fell sharply to 49.5 from 51.7 in October. That 49.5 reading was the lowest since June 2009. ISM’s service sector was still at a respectable 54.2 in October, declining 0.9% for the month. Durable goods spending held up for October; overall, it was flat for the month and actually increased 1.5% minus transportation orders, suggesting that many companies were spending even as the fiscal cliff loomed. The federal government revised Q3 GDP north to 2.7%.2,3,5,6
GLOBAL ECONOMIC HEALTH
It was official: Europe was again in recession. The European Union’s EuroStat office reported Q3 GDP shrinking 0.1% after declining 0.2% in Q2. In a new Bloomberg Global Poll of 800+ analysts, traders and investors, 53% of respondents felt Germany would enter a recession next year; though its unemployment rate was near a two-decade low, its retail sales had fallen 2.8% in October. While yields on Spanish bonds had declined from troubling July highs, 83% of those asked in the Bloomberg poll felt Spain would need a bailout in the next year. The EU did extend repayment terms (and lowered interest rates) on the latest rescue loan for Greece, with new confidence that its economy was finally on track to be repaired. 9,10
Data from China and other Asia-Pacific economies offered some bright spots. While GDP projections for China in ranged anywhere from 5.5% across the next six years (the Conference Board) to 9.3% in 2013 (Renmin University), its official purchasing managers index showed improvement to 50.6 in November while the HSBC China PMI hit a 13-month peak of 50.5. PMIs in Indonesia and Vietnam were above 50 in November; PMIs in Taiwan, Australia and South Korea were not.11,12
November was a good month for many indices: the MSCI Emerging Markets Index (+1.18%), the MSCI World Index (+1.07%), the CAC 40 (+2.83%), the Hang Seng (+2.81%), the Nikkei 225 (+6.83%), the FTSEurofirst 300 (+1.48%), the TSE 50 (+6.46%), the Sensex (+4.93%), the DAX (+1.66%) and the KOSPI (+1.75%). It was a subpar month for the Shanghai Composite (-3.99%), the TSX Composite (-1.11%), the Bovespa (-0.36%) and the Micex in Russia (-1.16%).13,14
The numbers that mean the most in this sector were strikingly positive. October data from the National Association of Realtors showed existing home sales had improved 10.9% from a year before with an 11.1% increase in the median sale price ($178,600). The Census Bureau noted a 17.2% annual rise in new home sales. (For the month of October, existing home sales were up 2.1% while new home sales were down 0.3%; NAR had pending home sales up 5.2% to the highest level since March 2007.) The S&P/Case-Shiller Home Price Index had showed eight straight months of gains as of September; housing starts rose 3.6% in October to a five-year high, and builder confidence (as measured by the November National Association of Home Builders Housing Market Index) reached a six-and-a-half year peak. At the end of October, the supply of existing homes on the market dropped to a ten-year low, and the new home inventory was close to a 50-year low.3,18,19,20,21
LOOKING BACK…LOOKING FORWARD
The CBOE VIX ended November at a remarkably low 15.86. The NASDAQ wrapped up the month at 3,010.24, the S&P 500 at 1,416.25 and the DJIA at 13,025.04.1
UPCOMING ECONOMIC RELEASES: Across the rest of December, the list looks like this: ISM’s October non-manufacturing index and October factory orders (12/5), November’s jobs report and the University of Michigan’s initial consumer sentiment survey for the month (12/7), October wholesale inventories (12/11), an FOMC policy decision (12/12), November retail sales, October business inventories and the November PPI (12/13), November’s CPI and industrial output (12/14), the December NAHB housing market index (11/18), November housing starts and building permits (12/19), November existing home sales, the Conference Board’s November Leading Economic Indicators index, the final estimate of Q3 GDP and the October FHFA housing price index (12/20), the University of Michigan’s final consumer sentiment survey for December plus the November consumer spending figures (12/21), November durable goods orders (12/24), the October Case-Shiller home price index (12/26), the Conference Board’s December consumer confidence survey and November new home sales numbers (12/27), and finally, the November pending home sales report from NAR (12/28).
To Your Prosperity,
This article prepared in conjunction with Peter Montoya.