It's all about the 'Fiscal Cliff' at this stage - and rightly
so. One could argue about how good or otherwise the pace of
current economic growth is, but no one doubts it will be in far
worse shape should the spending cuts and tax increases take
effect. The consensus view is of an 11th hour deal that helps
avoid the bulk of the fiscal changes from taking effect in 2013.
The opening positions from both sides look far apart on surface,
but they do have the building blocks that should form part of the
final deal. That said, there is still room for miscalculation on
both sides that has the potential of pushing us over the
Business confidence appears to have taken a hit from the
domestic fiscal uncertainty and the weak outlook for global
economic growth. One could blame Monday's sub-par ISM reading on
the effects of Sandy, but the measure was hardly in robust shape
even before the storm. In fact, the ISM reading had come out of
contraction mode only in September after going below the 50-level
in the summer months. Recent trends in business spending have
been bearing out this weakening backdrop. We will likely see this
in reduced hiring numbers in the November non-farm payroll data
coming out this Friday as well. Sandy will undoubtedly have a
hand in bringing down the jobs numbers this Friday. But the storm
effects shouldn't make us discount the broad signs of weakness on
business spending side.
Housing remains the one bright spot on the economic horizon,
which has the potential of offsetting the weakness from business
spending and exports. This morning's strong quarterly earnings
), the high-end homebuilder, further confirms the favorable
momentum in this key sector of the economy. Results from
) also came in better than expected this morning. But these two
positive earnings reports shouldn't distract us from the overall
uncertain corporate earnings picture in the coming quarters.
Current expectations for full-year 2013 remain on the optimistic
side even without accounting for a reasonable 'Cliff' resolution.
This increases the odds that we will see accelerated downward
adjustments to estimates in the New Year.
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