A great deal of attention has been paid to
the "looming fiscal cliff" in recent months
, and now it's time to broaden your scope and track a series of key
economic data points that might really spell out which kind of
stockmarket we'll see in 2013. I'll get to that in moment -- after
some follow-up thoughts on that dreaded fiscal cliff's near-term
More bark than bite?
Earlier this summer, a series of surveys found that companies were
starting to freeze important spending plans on fears that these
investments would come to fruition just as the fiscal cliff was
tumbling oureconomy into a deeprecession . The mere fear of such
eventual paralysis led some to conclude that economic activity in
the third-quarter would slow and that fourth-quartergross domestic
) might show deep weakness.
Well, that view was wrong. Recent economic data -- in
manufacturing and housing -- have been better than expected, and
the expected slowdown may not materialize. In September,
theInstitute for Supply Management 's manufacturing PMI rose 3.6%
to 51.5, which indicates that the manufacturing sector is
expanding. In addition, U.S. home prices increased 11% in
September, according to the National Associations of Realtors
Still, you need to stay tuned this Friday morning, Oct. 26, when
theCommerce Department releases its firstGDP reading for the
third-quarter. Right now, the consensus forecast calls for GDP of
1.8%, which would be a slight improvement from the second-quarter
reading of just 1.3%. Still, 1.8% is hardly pleasing. We still need
to see how the fourth-quarter will shake out. Based on commentary
from companies that have reported third-quarter results thus far,
the fourth-quarter is likely to be tepid -- at best -- in terms of
economic activity. The rate of GDP growth is surely to affect
the market's direction in 2013.
As I noted in this piece
, GDP growth below 2% can be troublesome while more robust GDP
growth can create the perfect backdrop for a surgingbull .
If the U.S. economy exits the current year growing at a 2% rate
or less, then investors should be quite concerned about the outlook
for 2013. And not because of the fiscal cliff, but of the plan that
The early 2013 landmark agreement
If the fiscal cliff policies were enacted -- which entails a
radical amount of cost-cutting initiatives, then the economy would
roughly take a 3% to 4% hit, according to various economic reports.
Coupled with an existing economy growing at a tepid 2%, this drag
would surely push the economy into recession. The good news: Fears
of this happening will be enough grounds for Washington to come up
with a different, perhaps milder plan.
Instead of the fiscal cliff, get ready for less impactful moves,
though there will still be government spending cuts and tax raises
(or at least close tax loopholes). Therefore, we're likely still
talking about at least a 1% to 2% drag on the economy.
This is precisely why the third- and fourth-quarter GDP readings
are so important. If the economy grew at least 1.8% in the
third-quarter of 2012 currently expected, and can use housing,
manufacturing and perhaps consumer spending as levers to deliver a
fourth-quarter GDP growth rate above 2%, then the economy may just
have enough momentum to blunt the effect of whatever economic
package Washington ultimately delivers.
As soon as we process the results of this Friday's third-quarter
GDP report, all eyes will pivot to next Friday's big economic news.
The Bureau of Labor Statistics will announce the monthly employment
report on Friday, Nov., just a few days before the presidential
election. For undecided voters, this figure may help them determine
whether we should stay the course with President Barack Obama, or
make a change with former Massachusetts Governor Mitt
Suffice it to say, the election outcome has a range of
implications for how government policies deal with the eventual
fiscal agreement that Washington will have to enact. Make no
mistake, neither Obama nor Romney may be able to avoid a recession
in 2013 if we exit this year on a slowing note.
Risks to Consider:
As an upside risk, a range of other economic reports will be
released in coming weeks, and if they show vigor, then the economy
may have just enough animal spirits to fight off any flaming
daggers coming from Washington in the form of
Action to Take -->
Even as you play close attention toearnings season , it's time to
put a lot more energy into analyzing economic reports, which are
usually released at 8:30 a.m. or 10 a.m. EST.
Other key economic items to watch:
Consumer Confidence, Oct. 30, 10 a.m. EST
Chicago Purchasing ManagersIndex
Oct. 31, 9:45 a.m. EST.
(The Chicago region mirrors the nation in its distribution of
manufacturing and non-manufacturing activity, so this is usually
seen as an important economic indicator.)
NFIB Small Business Optimism Index, Nov. 13, 7:30 a.m.
-- David Sterman
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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