Resilient -- there's simply no other word that describes the
It has been faced with so many challenges during the past few
years, and yet it's actually growing stronger -- at least by
several key measures. You can also chalk it up to a bit of good
luck. After the GreatRecession of 2008, many companies continued to
invest in growth, even as consumers were trembling with fear.
Nowadays, consumer spending is beginning to have a tangible effect
on the economy, even as key corporate metrics start to wane. If
these pillars of the economy can remain healthy in 2013, then we
may finally be able to witness economic growth with breakaway
To have full grasp of these pillars, here are nine key metrics,
how they've trended in 2012 and what we can anticipate for
Consumer sentiment is clearly strengthening
Earlier this summer, consumer-sentiment surveys were pointing
to trouble ahead. Whether it was the early days of
discussions about the looming "fiscal cliff," uncertainty
about the presidential election or renewed fears that
European and Asian economies would fall off the rails,
consumers had ample reason for concern. Yet in recent months,
they've decided "to heck with it," and for reasons that are
hard to pinpoint, consumers have been feeling much perkier
recently. October's measure of 88.1 was the highest in more
than five years on the Thomson Reuters/University of Michigan
Consumer SentimentIndex .
This housing rebound is for real
One possible explanation for brightening consumer sentiment:
The housingmarket has clearly turned the corner, with monthly
existing home sales and median home prices rising at a
roughly 10% pace for much of the year, compared with
year-earlier measures. Rising home prices tend to bolster
consumers' sense of wealth, which can unlock discretionary
spending. Another sign of housing support: The monthly supply
of unsold homes has fallen from 7.9 months worth ofinventory
to a recent 5.4 months, according to the National Association
A steadily improvingjob market
Although the prevailing sense of a weak job market remains,
the numbers point to a brightening trend. After a pullback
this summer,nonfarm payrolls have expanded by at least
148,000 in each of the past four months. What is especially
impressive is the relative resiliency of the job market in
the face of shrinking government payrolls. The question for
the months ahead:Will a grand bargain from Washington to
avert the fiscal cliff entail more federal job cuts? If so,
then the private sector will need to show its mettle to take
up the slack.
The reasonably impressive job numbers may be partially
attributable to a still-decent outlook for exports. Even with
Europe in the tank and China wobbling, U.S. manufacturers
have still been able to post solid year-over-year gains in
the export of goods. If Europe stabilizes in 2013 and seeks
to make up for years of deferred capital spending, then U.S.
exports can grow even more quickly in 2013.
Yet manufacturers are still playing it safe when it comes to
inventory. Outside of the auto industry, most industries are
carrying just five weeks worth of inventory (as a percentage
of sales). If the economy strengthens into 2013, then many
manufacturers may seek to bolster inventories, and an economy
always prospers during a phase of inventory rebuilding.
Purchasing agents getting busier
Perhaps in response to still-lean inventories, companies
appear to have started placing more orders. TheInstitute for
Supply Management 's Purchasing Manager Index (PMI) rose to
52.8 in November, the highest reading since May. Any number
of more than 50 signals an expansion in the manufacturing
Small businesses are hurting
Even though the economy looks a bit healthier, small-business
owners remain quite cautious. The monthly survey from the
National Federation of Independent Businesses (NFIB) shows
that the Small Business Optimism Index continues to hover
around 93. The survey showed that just prior to the election,
a record high 23% of small-business owners felt uncertain
about business conditions during the next six months. This
eclipsed the pre-recession record of 15% reached during
former President Jimmy Carter's administration, according to
the NFIB. The next report comes on Dec. 11, and it will be
interesting to see whether the recent elections had an effect
on that uncertainty. Then again, until the current budget
impasse is resolved, small-business owners are likely to
The Chicago Fed's bleak view
I've saved the worst for last.
at the Chicago Fed National Activity Index (CFNAI) in June,
and this broad-based measure of economic activity has only
worsened since then. In fact, the index's -0.56 reading for
October is the lowest in several years. The CFNAI has an
uncanny ability to predict quarterlygross domestic product (
) growth rates, so the recent negative readings imply weak
economic growth in the current quarter.
Risks to Consider:
The size and scope of looming government budget cuts and tax
increases could create a drag on the economy, so you need to track
these data points quite closely as we head into spring.
Action to Take -->
A clear trend has emerged. Consumers are leading the way even as
corporate America seems to be on shakier ground. But once
Washington comes to a budget deal, corporate spending may reverse
course and the stage may be set for a more robust economy in
-- David Sterman
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David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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