First, the market closed over 14,000 for the first time in a long time and for those of you who mistook the economic data over the last 3 years you have really missed a hell of a ride in the stock market. There are all sorts of reasons why this has happenned and the only thing that matters really is that it did happen and it is now at a frothy level. So, here are the highlights:
- GDP - Shrunk by .1%: This is one which requires you to dig down a bit. The core reason for this is the massive decrease in defense spending in anticipation of the sequester cost reductions. Yes, government spending does matter and if this does not get resolved we will take 2% - 3% out of GDP. This was a small glimpse.
- Durable Goods Orders - Increased by 4.6%: Great news showing investment by businesses which generally implies they see a good 2013 coming. Some of this may have been due to trying to second guess any changes in depreciation rules but overall, it is a good sign.
- Consumer Confidence - 58.6 v expectations of 64: The consumer continues to feel the blues and is just not feeling good. We will need to watch this closely because if this translates to lower spending and the sequester cuts cause the government spending to continue to decrease at the rate it is going, the likelihood of recession will increase dramatically. I am not going so far as to blame the expiration of the payroll tax holiday as I do not think people can even calculate that for the most part. The bottom line is while the market is growing dramatically people still feel they are one hiccup away from losing their job, losing their house and general economic problems. This causes them to feel bad and hoard cash. This caused personal spending to miss expectations by .1%.
- Unemployment - 7.9%: While this ticked back up by .2% the number of jobs available has increased and a general feeling is we are rebounding in jobs.
- ISM Index - 53.1: This was the big news. Manufacturing clearly continues an increase and had a robust January. That was really good news. Now if we can get this to improve the employment numbers we may have a real economy going here. However, the data as one economist sees it says we could get this rebound without a big move in jobs numbers because companies have figured out how to have machines do more and more of the highly skilled work. The old argument in economics always is the trade off of capital and labor and it appears capital may be winning in "The Rise of The Robots". (note: Ignore the politics in the linked post: Just read the facts on labor v. capital)
Overall, I would say it was a great start to 2013 and the data appears like a fairly decent economy. The risks which are very clear are:
- Government pulls back on defense spending for real and takes with it almost the entire GDP.
- Employment numbers truly do start decreasing and unemployment never decreases.
- Consumer confidence never comes back. A danger to all types of recessions is you never get to "take off" speed because of hoarding and hoarding occurs when people just feel bad about the future.
That is it for now.. Happy February!!