A Brighter Picture for Jobs and the Economy
Promising fundamental developments suggest that U.S. economic expansion is likely to continue and equities will rise in the first quarter.
by Scott Minerd, CIO, Guggenheim Partners LLC
"Despite the economic headwinds resulting from the fiscal cliff concerns in December, the U.S. economy has shown surprising resilience. Data on wages and hours worked have both picked up over the past several months, which is supportive of future employment growth. Importantly, it also appears as though wage improvement will offset tax increases in the coming year. At the state and local level, the U.S. is forecasted to enjoy the most significant job growth in over half a decade. Contribution to overall GDP growth from the state and local sector is expected to finally turn positive in 2013 after being negative since 2009.
As the pent-up demand for capital expenditures and hiring from the fourth quarter enters the market, U.S. economic growth is set to continue. All of this news is particularly positive for the stock market, which has already made up losses from the fourth quarter of 2012 and is poised to continue higher."
Economic Data Releases
U.S. Labor Market Continues to Recover
• U.S. non-farm payrolls increased slightly more than expected in December, with 155,000 jobs added and upward revisions for the previous two months.
• The unemployment rate held at a four-year low of 7.8% after the November revision. Encouragingly, hourly earnings rose 0.3% and the weekly working hours inched upward.
• Initial jobless claims for the week of December 29th rose by 10,000 from the previous week to 372,000.
• Factory orders in November were flat, while the ISM non-manufacturing index rose to 56.1 in December, showing the fastest expansion in 10 months.
• NFIB small business optimism rose to 88.0 in December, exceeding expectations.
Eurozone Data Mixed, Positive Signs in China
• The eurozone unemployment rate rose to 11.8% in November, the highest level since the inception of the euro.
• A number of PMIs were released in Europe, with the Eurozone Composite PMI ticking down to 47.2 in December and the Services PMI remaining unchanged. Italy’s Services PMI rose 1.0, while France, Germany, and the UK all unexpectedly declined.
• Consumer confidence in the eurozone was little changed in December at -26.5, while economic sentiment jumped to 87.0 from 85.7.
• Eurozone retail sales showed a slight gain in November with 0.1% month-over-month growth. The Eurozone CPI estimate stayed at 2.2% in December, while PPI fell for the first time since June on a month-over-month basis.
• In Germany, the unemployment rate held at 6.9% in December, and retail sales increased at the fastest pace in 21 months in November.
• On the negative side, German exports fell by the most since October 2010, and factory orders dropped 1.8% in November.
• In China, the December non-manufacturing PMI showed the fastest expansion in four months at 56.1, while the HSBC services PMI dropped slightly to 51.7.
Chart of the Week
Private Sector Triumvirate: Payrolls, Hours Worked, and Earnings Increase
The U.S. non-farm job reports over the past two months showed solid gains in payrolls, working hours and earnings. The aggregate weekly earnings in the U.S. non-farm private sector, which are the product of average hourly earnings, average weekly hours, and total non-farm private payrolls, increased at an annualized rate of 4.0% in 4Q2012. Since bottoming in October 2009, the aggregate earnings have increased 13.3%, of which the increase in average weekly hours contributed 2.4%, the increase in average wages contributed 6.1%, and payroll gains contributed the remaining 4.8%. The solid gains in aggregate earnings should provide substantial support for U.S. household disposable income.
Normalized Aggregate Weekly Earnings – Non-Farm Private Sector
Source: Bureau of Labor Statistics, Bloomberg, Guggenheim Investments. Note that level at October 2009 =100. Data as of 12/31/2012.
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