US Economy, the stock market , and other investment/savings strategies

[DougMacG]

Good investment advice today from the WSJ:

[Crafty_Dog]

I know Wesbury can be fairly criticized on a number of points, but I think some of us are a tad unfair to him because he is less apocalyptic than most of us.  That he sees positives that some of us do not, does not mean he approves of the negatives that His Glibness generates.

Anyway, four years from energy independence is a real big fg deal as far as I am concerned!

================

The trade deficit in goods and services came in at $39.1 billion in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Dep. Chief Economist
Date: 9/4/2013

The trade deficit in goods and services came in at $39.1 billion in July, slightly larger than the consensus expected $38.6 billion.
Exports declined $1.1 billion in July, due to capital goods (such as aircraft) and consumer goods (such as jewelry and gem diamonds).  Imports rose $3.5 billion, led by oil and autos.   
 
In the last year, exports are up 3.3% while imports are up 0.8%.  Petroleum imports are down 0.9% from a year ago, while non-petroleum imports are up 1.3%.
 
The monthly trade deficit is $4.3 billion smaller than a year ago.  Adjusted for inflation, the trade deficit in goods is $1.2 billion smaller than a year ago.  This is the trade indicator most important for measuring real GDP.
 
Implications:  After shrinking sharply in June, the trade deficit widened in July.  In July, imports rose, while exports slipped slightly.  Over the past year, total exports are up 3.3% and total imports are up a smaller 0.8%.  Behind these short-term gyrations, the biggest story in the trade sector is US energy production due to horizontal drilling and fracking.  Since July 2007, overall petroleum exports are up 276%.  Petroleum imports are up 27% in those same six years, but have fallen by 14.9% since April 2010.  If current trends continue, and the US fixes its pipeline and refinery issues, the US will be running a petroleum trade surplus within four years.  Translated: This means energy independence.  Simply amazing.  We also notice that total exports to the European Union are up 8.7% from a year ago, which is consistent with other recent data suggesting the EU as a whole is coming out of its recession.  Sales to the Pacific Rim are up 0.8% and sales to South/Central America are up 12.7%. We expect more gains in exports in the year ahead.  Usually, when the US economy is growing, the trade deficit tends to expand relative to the overall size of our economy.  However, given higher energy production, the trade deficit is much less likely to expand like that anytime soon and will more likely than not add to real GDP growth in Q3.  In the meantime, today’s data suggest the trade sector will subtract 0.1 percentage points from the real GDP growth rate in Q2, versus a government estimate last week that it had a neutral impact.  As a result, it looks like real GDP grew at a 2.6% annual rate in Q2.     

[Crafty_Dog]

BTW gents, David Gordon, a name known to some of you, is quite bullish.


________________________________________
The ISM Non-Manufacturing Index Rose to 58.6 in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/5/2013

The ISM non-manufacturing index rose to 58.6 in August, coming in well above the consensus expected 55.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The key sub-indexes were all higher in August, and all remain above 50. The new orders index rose to 60.5 from 57.7 and the business activity index increased to 62.2 from 60.4 while the supplier deliveries index gained to 54.5 in August from 52.5. The employment index rose to 57.0 from 53.2.

The prices paid index declined to 53.4 in August from 60.1 in July.

Implications: The ISM service report exploded higher in August, beating the forecast from all of the 84 economics groups that made a prediction and coming in at the highest level since December 2005. The business activity index, – which has a stronger correlation with economic growth than the overall index – boomed to 62.2, while the new orders index also showed notable growth to 60.5. Even the employment index showed strong growth to 57.0. We expect this measure to remain at elevated levels in the coming months as companies hire more in response to better economic growth (which the business activity index is showing). On the inflation front, the prices paid index fell to 53.4 in August from 60.1 in July. Given loose monetary policy, we expect this measure to move upward over the coming year. In other recent news, Americans bought cars and light trucks at a 16.1 million annual rate in August, an increase of 1.8% over July, 11.1% versus a year ago, and the fastest pace since September 2007. Pessimistic analysts have been touting the end of the payroll tax cut and the federal spending sequester as reasons to expect weaker economic growth. But the truth, from looking at the data so far, is little to no significant impact from these events on the consumer or economy, and we do not think there will be. What we have here is a Plow Horse Economy that looks like it may be starting to trot.

[Crafty_Dog]

Non-Farm Payrolls Increased 169,000 in August vs Consensus Expected 180,000 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/6/2013

Non-farm payrolls increased 169,000 in August versus a consensus expected 180,000. Including downward revisions to prior months, nonfarm payrolls were up 95,000.

Private sector payrolls increased 152,000 in August (+116,000 including revisions to prior months), lagging the consensus expected 180,000. The largest gains were for retail (+44,000), health care (+33,000), and restaurants & bars (+21,000). Government payrolls rose 17,000.

The unemployment rate declined to 7.3% (7.278% unrounded) from 7.4% (7.390% unrounded).

Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in August and are up 2.2% from a year ago.

Implications: Something for everyone in today’s report. Data that was weaker than the consensus expected (the payroll report) had strong details, while data that was stronger than expected (the unemployment rate) had weak details. Nonfarm payrolls increased 169,000 in August but only 95,000 including downward revisions to June/July. Very mediocre. However, average weekly hours ticked up and, as a result, total hours worked were up 0.4% in August. If the number of hours per worker were unchanged, a 0.4% gain in total hours would mean a 450,000 gain in payrolls. So we don’t think today’s report indicates a lack of demand for labor. The unemployment rate dropped to 7.3%, the lowest so far this recovery, but it was the result of a 312,000 drop in the labor force. Civilian employment, an alternative measure of jobs that includes small business start-ups, declined 115,000. As a result, the labor force participation rate fell to 63.2%, the lowest since 1978. It’s important to note, however, that the population keeps increasing, so even though the participation rate is so low, the labor force itself is up 718,000 in the past year even as the unemployment rate has dropped 0.8 points. One recent debate is about part-time work. Through July, part-timers were up 692,000 so far this year, a very large share of job gains in 2013. However, part-timers were down 123,000 in August. Either way, we think part-time data need to be handled carefully given volatility. We prefer looking at it over periods of a year. In the past twelve months, part-timers have increased 253,000, which is only 13% of all job gains. However, we can’t help but notice that some of the largest recent payroll gains have been in sectors that lend themselves to part-time jobs. Retail, restaurants & bars, combined, now make up the largest share of private payrolls on record (going back to 1990) with a recent surge that started in April. Only time will tell for sure, but it’s hard to believe Obamacare has nothing to do with this. Firms in these sectors may be adding more jobs as a result, but doing it with part-time work. In terms of consumer spending, in the past year hours are up 2.4% while wages per hour are up 2.2%, for a 4.6% gain in cash earnings. After adjusting for inflation, these earnings are up 3% from a year ago, so workers are generating more purchasing power. The big question is how the Federal Reserve reacts to today’s report. We think the numbers still support tapering in September. Obviously, the labor market is far from perfect. What’s holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.

=================================================

THE FOUNDATION
"This gave me occasion to observe, that when Men are employ'd they are best contented." --Benjamin Franklin
ECONOMY
Recovery Bummer
 

At first blush, today's jobs report once again seems to contain good news: 169,000 jobs added and unemployment dropping a tenth of a point to 7.3%, the lowest since December 2008. But beware what we call the "headline" numbers. The Leftmedia employes them to bolster the sorry record of their man in the White House.
Digging deeper, we find trouble quickly. July numbers were revised down from 162,000 to just 104,000, and June was revised down for the second time. The unemployment rate fell once again only because so many people are giving up looking for work -- 312,000, or nearly twice the number who found work -- and they aren't counted in the report. The labor participation rate fell to 63.2%, the lowest since Jimmy Carter's malaise days of August 1978. If labor participation remained at the same level it was in January 2009, the headline unemployment rate would be 10.8%. It would be 7.7% if participation was the same as just one year ago.
As for the U-6 fuller measure, Hot Air's Ed Morrissey observes that it "dropped from 14.0% to 13.7%, its lowest level in five years." But, he warns, "[T]hat has to do with the shrinking workforce, too. In order to be counted in U-6, workers have to be at least marginally attached to the labor force. That's defined as 'those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months.'"
Meanwhile, Barack Obama and his crack shot economic team promised that if we just passed the "stimulus" unemployment would be 5% by now.

=========================

http://www.theblaze.com/stories/2013/09/06/u-s-unemployment-nuges-down-slightly/

Unemployment rate is 10.8%

[Crafty_Dog]

Industrial Production Rose 0.4% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/16/2013

Industrial production rose 0.4% in August and a higher 0.5% including revisions to prior months, basically matching the consensus expected 0.5% gain. Production is up 2.7% in the past year.

Manufacturing, which excludes mining/utilities, rose 0.7% in August (0.6% including revisions to prior months). Auto production increased 5.2% in August, while non-auto manufacturing was up 0.3%. Auto production is up 8.4% versus a year ago while non-auto manufacturing is up 2.1%.

The production of high-tech equipment rose 1.7% in August, and is up 9.9% versus a year ago.

Overall capacity utilization rose to 77.8% in August from 77.6% in July. Manufacturing capacity use gained to 76.1% in August from 75.7% in July.

Implications: A strong report today coming out of the industrial sector after a few soft months. Industrial production rose 0.4% in August, was revised up for prior months, and is up a plow horse-like 2.7% from a year ago. Taking out mining and utilities gives us manufacturing. This measure was up an even faster 0.7% in August, and up 2.9% from a year ago. Notably, the recent acceleration of output is being led by business equipment rather than consumer goods, which signals a potential pick up in productivity growth in the year ahead. We expect continued gains in production as the housing recovery is still young and demand for autos and other durables remains strong. Over the past year, the auto sector has led the manufacturing gains, up 8.4%, but even manufacturing outside the auto sector has done OK, up 2.1%. We expect the gap between those two growth rates to narrow in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization increased to 77.8% in August and remains not far from the average of 79% in the past 20 years. Gains in production in the year ahead should push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing companies have the ability to make these investments. In other manufacturing news this morning, the Empire State index, a measure of manufacturing in New York, declined to +6.3 in September from +8.2 in August. This is a little below consensus expectations but shows continued growth.

[DougMacG]

"Industrial production...is up a plow horse-like 2.7% from a year ago. "

Two problems with 2% growth:

1) Since the trajectory is below break even growth, the point where we will have outgrown the current malaise at this rate is - never.

2) With growth rounding to zero and negative growth considered catastrophic we are perhaps one more external economic shock away from disaster.

Other than that, things look okay ...

[Crafty_Dog]

Nonetheless, David Gordon is calling a strong bull market.

[DougMacG]

Nonetheless, David Gordon is calling a strong bull market.

I very much respect his opinion on stocks, but I don't see anyone predicting the economy move forward much better than it is without changing policies.  Even the optimist Wesbury predicts plowhorse growth and then he defines that in the 2%, sub-breakeven range.  So the contention continues between the US economy and the strategies for investing, both are part of this thread.  Corporate profits (of established companies helped by regulations blocking out competition) are high.  Real startups, hiring, workforce participation, global economic growth and nearly all other indicators are low and stuck.

How high will these profits and stock prices go without real growth?  I don't know.

[Crafty_Dog]

Doesn't Government Lie?
By Brian Wesbury, Bob Stein - First Trust Advisors
17 September 2013

Like a Plow Horse, the US economy keeps plodding along – GDP and payrolls keep growing. This confounds many pessimistic, debt-focused, perma-bear investors, who fall back on the belief that anything good must simply be a lie.

They claim the government is lying about jobs, lying about debt, lying about everything. Some of this is about the Obama Administration, but some of it is just general distrust. Even if there’s no direct White House link, the pessimists argue that federal bureaucrats are in on the con.

We can understand some doubt about the veracity of the government, but the evidence supposedly proving that the government is lying shows that many people misunderstand the data. Exhibit A is the argument that government is lying about the federal debt – it has been stuck at $16.74 trillion since May, despite continued budget deficits.

But this isn’t a lie; it’s just the way the accounting works. The US hit the debt ceiling in May and cannot issue any new debt, on net. So, in order to fund spending in excess of revenue, it’s borrowing from federal worker retirement systems and issuing IOUs, which don’t count toward the official debt. This is not the first time the government has done this, and it’s happened under both Republicans and Democrats. All of it is recorded, it’s not hidden. It’s not a lie.

Another claim is that any gains in employment should be discounted because it’s mostly part-time work. So far this year, 66% of the increase in employment has been part-time. Ironically, those who say we can’t trust government data are willing to put aside their qualms when they find data like this.

But this is a mistaken view as well. Figures on part-timers are extremely volatile from month to month, so it’s important to use these numbers over periods of at least a year. Part-timers plummeted 316,000 in the last four months of 2012, so focusing on just the eight months this year skews the results. In the past 12 months (including late 2012), part-timers have only made up 13% of job gains, which is less than usual.

Another claim is that the official unemployment rate of 7.3% is hiding discouraged workers and part-timers who want to work full-time. Including them pushes the “true” unemployment rate to 13.7%.

However, this more expansive definition of joblessness, also known as the U-6 unemployment rate, is down from a peak of 17.1% in 2009. Like the official unemployment rate, the U-6 also comes from the government and dates back to 1994. Since then, whether in good times or bad, it has generally been about 80% higher than the official rate. Right now, it’s 88% higher, a little more than usual.

The bottom line is that the labor market is making progress but still far from operating at its full potential, which is the same exact message sent by the overall unemployment rate.

But the final nail in the coffin of government data conspiracy theories is that not all the reports are from the government. The two surveys from the Institute for Supply Management – one on manufacturing, the other on services – as well as auto sales, all show steady economic growth. Over the past four years, a composite of the two ISM indexes has averaged 54.2, the same as it did in 2001-05, when real GDP growth averaged 2.8%. This time around, real GDP growth has averaged 2.2%. Auto sales, compiled by the automakers themselves, show a gain of 11% in the past year. In other words, private data has been better than the government reports.

A healthy dose of skepticism is usually a good thing. But there’s a big difference between reasoned skepticism and a case of denial designed to postpone confronting comfortable theories that haven’t worked. The economy could be much better if government got out of the way, but it stopped getting worse more than four years ago.

[G M]

http://www.gallup.com/poll/164363/americans-struggle-afford-food.aspx

More Americans Struggle to Afford Food

Americans' overall access to basic needs is close to record-low

by Alyssa Brown



WASHINGTON, D.C. -- More Americans are struggling to afford food -- nearly as many as did during the recent recession. The 20.0% who reported in August that they have, at times, lacked enough money to buy the food that they or their families needed during the past year, is up from 17.7% in June, and is the highest percentage recorded since October 2011. The percentage who struggle to afford food now is close to the peak of 20.4% measured in November 2008, as the global economic crisis unfolded.

[G M]

Maybe Wesbury was too busy hawking the recoveries that never happened to read about fast and furious, Benghazi, the IRS and NSA scandals and the many others too numerous to mention.

[DougMacG]

Maybe Wesbury was too busy hawking the recoveries that never happened to read about fast and furious, Benghazi, the IRS and NSA scandals and the many others too numerous to mention.

Of course Wesbury is talking about the economic data - mostly.  "Many pessimistic, debt-focused, perma-bear investors...claim the government is lying about jobs, lying about debt, lying about everything". 

But then he gives unemployment as an example, then shows how U3, the most widely reported measure, is a deception.  Then he quotes U6 which is EIGHTY EIGHT PERCENT HIGHER, but that is a deception too, not taking at all into account FIVE MILLION PEOPLE WHO LEFT THE WORKFORCE.  Not mentioned are the poverty figures which are a deception, CPI which is a poor measure, baseline budget cuts which ARE a lie, etc. etc.

"The economy could be much better if government got out of the way, but it stopped getting worse more than four years ago."

   - Maybe yes, maybe no.  Are unfunded liabilities higher or lower now than 4 yrs ago?  Are marginal tax rates higher or lower?  Do we have more over-regulation or less over-regulation?  Is Obamacare, passed 4 years ago, a plus or a minus for the outlook for investment and hiring?  99% of the people aren't moving ahead and don't have more money in their pocket after 4 years of steady improvement.  Who is he really zooming?

[Crafty_Dog]

This thread has as its subject matter the economy and the stock market.  The two of them are definitely different things.  We tend to talk about the economy, Wesbury tends to talk about the market.

[DougMacG]

This thread has as its subject matter the economy and the stock market.  The two of them are definitely different things.  We tend to talk about the economy, Wesbury tends to talk about the market.

We come at it from different directions but I believe we were directly addressing specific points that Wesbury made.

One of his central points is that stocks are not up just because of QE and artificial stimulus.  But when Bernancke announced 'tapering' the market started down and when the Fed reversed course and said massive quantitative stimulus will continue, because of the weakness in the economy, the market surged forward.  Hmmm.

David Gordon and the bulls will make massive money in the short run off of an economy propped up and distorted by a house of cards.  That does not change the fact that a day of reckoning will come and one should be ready.  So both the bulls and the bears are right with different time frames.

Wesbury has never been accused of the 'famous person caught reading the forum' charge, but I would like someone to explain how far and how long the market can run in direct opposition to the realities of the economy.  Wesbury is saying the economy is fine in the face of stagnation and turmoil.  The Fed is saying otherwise, and then applying the wrong solution to the wrong problem, creating noise and a bouncing soup pot.  Fed feeding is how we got the last bubble and crash.  But history does not repeat itself we are told.  This time things will just go up and up with no consequence. 

http://www.cbsnews.com/8301-505123_162-57603445/with-economy-weak-fed-delays-move-to-withdraw-stimulus/
With economy weak, Fed delays move to withdraw stimulus

http://money.cnn.com/2013/09/18/investing/stocks-markets/index.html
Dow, S&P hit record after Fed holds off on taper

[DougMacG]

A picture equals a thousand Wesbury words.   

The Plowhorse's strength is matched against the load it is pulling.  Currently 144 million (45%) of 317 million Americans work, 55% don't.  That ratio is getting worse.  More than 90 million Americans, 16 and up, are now not working, soon to pass 100 million if our economic policies continue or worsen.  Only 11 million of 90 million, 16 and up, not working count as "unemployed", hence the 7.3% figure. 

[Crafty_Dog]

How Stock Prices Impact Fundamentals
•   Posted by Ivanhoff
•   on October 4th, 2013

George Soros is known as the “man who broke the Bank of England” in the early 1990s, but his main contribution to the financial world is the theory of reflexivity, which claims the following:

•   Prices aren’t objective; they’re based on people’s biased perceptions of the future;
•   Biased perceptions define people’s buys and sells, so perceptions will influence prices;
•   Prices impact perceptions and fundamentals too; therefore perceptions could impact fundamentals.

Soros’s reflexivity theory is also a common-sense explanation of why trends exist and why price momentum could be an excellent equity selection filter.
What happens when the price of a stock makes a new all-time high?

1)   The market is considered a feedback mechanism. When prices go up, people assume that their initial investment thesis is right and their expectations justified. They buy more and are joined by even more people wanting to participate in the trend. The fear of missing out is ruling market’s behavior.

2)   Higher stock prices mean happy shareholders. Since the manager of our company has made his investors a lot of money, he receives a lot of good faith and patience for future experiments. This manager could make a lot bolder moves and he is given more time to be right.

We have all seen the incredible faith that Amazon’s shareholders have in Jeff Bezos. 16 years after its IPO, Amazon still losses money on the occasional quarter, because it invests heavily in new projects. Amazon missed Wall Street’s earnings expectations in four of its last five reports. Any other stock would have been killed for missing estimates so many times. Not Amazon. Its stock climbed 50% in the past year and a half.

Management is an important part of the fundamentals of one company. When investors trust and believe management, they are willing to give his/her company a lot higher P/E multiple, and for a good reason. Investors tend to trust managers that make them money.

3)   The company could use its appreciated stock as a currency in order to acquire smaller competitors and the best human talent in its respective field, which makes it a lot stronger, functionally and operationally. We see how Google is scooping up many of the best engineers in the world. We see how Salesforce is incredibly active on the acquisition field. Better people, new and better products, less competitors are all factors that actually improve company’s fundamentals and they could be all derived from higher stock prices. The improved fundamentals attract a completely new set of buyers, which props the prices even higher.

And all of this could be started with just a good story about a better future. This is how perceptions become a reality.

Prices change when expectations change and expectations change when prices change. A good story that could capture the imagination could change expectations. The dream of future profits is what excites people, not the reality.

This is how momentum works, but the process does not last forever. People’s expectations about the future don’t always come true. The market constantly tries to discount events that have not happened yet. As a result, it will sometimes discount events that will never happen. The market is forward looking, but in the same time it is constantly looking for a feedback: in short-term perspective from price; in longer-term perspective – from fundamentals.

Sometimes, expectations turn into a self-fulfilling prophecy and end up impacting fundamentals. More often than not, the discounted future is way too optimistic or pessimistic. It is human nature to over-discounts identified risks and opportunities.  When the market realizes that it is not right, it just gaps in the other direction and starts the process of correcting its mistake – that process is usually a lot more violent and quicker.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

[Crafty_Dog]

http://seekingalpha.com/article/1737312-led-bulb-wars-cree-vs-wal-mart?source=email_rt_article_readmore

[DougMacG]

Notable and quotable regarding the market and economic doomsayers:

It is tempting to dismiss...pessimism as yet another case of the boy who cried wolf.  It is worth remembering, however, that the wolf does show up at the end of the story.

http://object.cato.org/sites/cato.org/files/pubs/pdf/pa737_web_1.pdf

[Crafty_Dog]

Fair point 

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Smaller Government Won! To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 10/21/2013

Well, New York City is not underwater, China did not sell bonds, oil did not stop flowing in the Bakken or Eagle Ford, the Cloud is still wherever it is, or was, the US stock market did not collapse, and the earth is still rotating on its axis. Democrats are still mad at Republicans, who are still mad at the Tea Party, who still fret about the path of fiscal policy.

In other words, nothing changed in the past three weeks…or, did it?

We subscribe to the “politics is backwards’ school of thought and if you want to know why the S&P 500 hit a new high on Friday, you should try to understand how that thought process works.

Think back to 1995/96 - the last government shutdown. Conventional wisdom says President Bill Clinton pounded Newt Gingrich and the Republicans like Baylor pounded Iowa State this past weekend (71-7). That’s what the polls said. Newt was done, finished, kaput, and Clinton got his mojo back.

But…is this really what happened? President Clinton signed welfare reform in 1996, and a year later, he agreed to a cut in the capital gains tax rate. These were Republican, free market-type, ideas, not liberal Democrat, ideas. So…who won?

Politics follows the laws of physics sometimes. Every action has an equal and opposite reaction – or – you can’t have tons of noise without some blowback.

What is really happening is that for 48 years, taxpayers have been pushing receipts into the federal purse at a rate of about 18% of GDP. Now, that same generation is expecting to take out much more than that over their lifetimes in Social Security, Medicare, Medicaid and other federal programs. Unless the US gets serious with reform, federal spending will go to 30% of GDP in the decades ahead.

This thought belongs to Stanley Druckenmiller. We give him full credit, but also want to take it a step further.

The argument isn’t all about generational politics. It’s about the dead-end of the status quo. The shutdown and debt ceiling fights are just the beginning. Like Detroit, Greece, Italy, Spain, Illinois, and many others, the US has made promises that are probably impossible to meet, not just to today’s older workers when they retire, but even to future workers for their retirements. Who seriously thinks the retirement age can stay around 65 as life expectancy keeps going up?

As a result, there will be changes that reduce the long-run path of government spending. It’s not for nothing that the Sequester happened, and it’s not for nothing that no one cares. The US is on an inevitable path toward smaller government than what’s currently projected for the future.

The numbers are the first reason, but there is a second, and more important, reason, too. The US government has become so large and cumbersome that it cannot possibly keep up with the dynamism of the tech-driven, rapidly-moving, private sector. The government tries to use technology to centralize, but tech is designed to decentralize. Problems with ACA websites are not just technical, they’re about information.

Government can’t master or control information (i.e. markets) because it does not allocate resources in an efficient manner. As the world becomes more efficient, the inefficient are crushed. Sorry Blackberry. Sorry Post Office. Sorry Crown Books. Sorry Big Government, which either must get more coercive, or smaller. We’re betting on smaller. That’s why stocks are up. And, we expect them to keep going up.

[Crafty_Dog]

Industrial Production Rose 0.6% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 10/28/2013

Industrial production rose 0.6% in September, coming in above the consensus expected 0.4% gain. Production is up 3.1% in the past year.

Manufacturing, which excludes mining/utilities, rose 0.1% in September (unchanged including revisions to prior months). Auto production increased 2.0% in September, while non-auto manufacturing was unchanged. Auto production is up 11.2% versus a year ago while non-auto manufacturing is up 2.0%.

The production of high-tech equipment declined 0.7% in September, but is up 7.3% versus a year ago.

Overall capacity utilization rose to 78.3% in September from 77.9% in August. Manufacturing capacity remained at 76.1% in September.

Implications: Another solid report coming out of the industrial sector, although the strong headline was tempered by some mixed details. Industrial production rose 0.6% in September, the largest monthly increase since February, and is at the highest level since March 2008. However, taking out mining and utilities gives us manufacturing. This measure, although up a respectable 2.7% in the past year, was up only 0.1% in September. The gain in manufacturing in September was all due to soaring auto output, up 2% in September; non-auto manufacturing was unchanged. Notably, the recent acceleration of output is being led by business equipment rather than consumer goods, which signals a potential pick up in productivity growth in the year ahead. We expect continued gains in production as the housing recovery is still young and demand for autos and other durables remains strong. Over the past year, the auto sector has led the manufacturing gains, up 11.2%, but even manufacturing outside the auto sector has done OK, up 2%. We expect the gap between those two growth rates to narrow in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization increased to 78.3% in September and remains not far from the average of 79% in the past 20 years. Gains in production in the year ahead should push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing companies have the ability to make these investments. In other news this morning, pending home sales, which are contracts on existing homes, fell 5.6% in September, suggesting a drop in existing home closings in October. Even with this decline, however, we expect existing home sales to still be up 10% versus a year ago.

[DougMacG]

The move to using clean domestic natural gas for transportation including cars and freight trucks is certain, except for all of the ways that government can potentially screw it up.  Natural gas burns cleaner in terms of pollution emissions and in terms of CO2 emissions than gasoline or diesel.  Over the road trucks haul nearly 70% of our freight.  Solar and wind will not get you there.  The limiting factor is availability. 
-------------------------
Truck stop chain TravelCenters of America (TA) has partnered with Shell (RDS.A) to add liquefied natural gas (LNG) fuel lanes at 100 different facilities across the United States. Clean Energy Fuels (CLNE) has partnered with private truck stop giant Pilot Flying J to embark on a mission to provide as many as 150 facilities with a natural gas solution.

The collaboration of Cummins (CMI) and Westport Innovations (WPRT) is leading the way with new engine designs that run on natural gas. Westport develops the technology while Cummins manufacturers the equipment.

The biggest risk to investing in the evolution of the natural gas engine via Cummins, Westport Innovations, and Clean Energy Fuels is that all three companies are so linked to each other's successes and failures.

More at link, free registration required.

http://seekingalpha.com/article/1776952-3-ways-to-play-the-natural-gas-engine-rollout?source=google_news

[Crafty_Dog]

More #PlowHorse in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/4/2013

Despite the shutdown, the sequester, talk of tapering, and meteors in the night sky, the US economy just keeps plowing along. Reported later this week, we expect Q3 real GDP grew right on trend at a 1.9% rate – another, #PlowHorse report.

It’s somewhat slower than we expected at the start of the year, but we still expect an acceleration in 2014-15 given loose monetary policy, a downward trend in government spending (relative to GDP), explosive new technology, record high corporate profits, and a forceful housing recovery.

Here’s our “add-em-up” calculation of real GDP growth in Q2, component by component.

Consumption: Auto sales were up at a 5% annual rate in Q3, while “real” (inflation-adjusted) retail sales ex-autos were up at a 1.4% rate. But services make up about 2/3 of personal consumption and, on a real basis, they appear to be unchanged. As a result, it looks like real personal consumption of goods and services combined, grew at a 1.3% annual rate in Q3, contributing 0.9 points to the real GDP growth rate (1.3 times the consumption share of GDP, which is 69%, equals 0.9).

Business Investment: Business equipment investment shrank at a 1.5% annual rate in Q3 while commercial building expanded at a 10% pace. Assuming R&D grew at a trend 2.5% rate, overall business investment grew at a 2.3% rate, which should add 0.3 points to the real GDP growth rate (2.3 times the 12% business investment share of GDP equals 0.3).

Home Building: The housing rebound continued in Q3, growing at about a 6.5% annual rate. This translates into 0.3 points for the real GDP growth rate (6.5 times the home building share of GDP, which is 3%, equals 0.2).

Government: Military spending picked up in Q3 and state/local government construction projects have turned the corner. On net, we estimate real government purchases grew at a 1% rate in Q3, which should add 0.2 percentage points to real GDP growth (1 times the government purchase share of GDP, which is 19%, equals 0.2).

Trade: At this point, the government only has trade data through August. On average, the “real” trade deficit in goods has contracted compared to Q2. As a result, we’re forecasting net exports added 0.2 points to the real GDP growth rate.

Inventories: With data only through August, it appears companies were accumulating inventories slightly faster in Q3 than Q2, adding 0.1 point to the real GDP growth rate.

Add-em-up and you get 1.9% for Q3. The economy ain’t gonna win any races, but it ain’t keeling over and dying either.

[DougMacG]

It’s somewhat slower than we expected at the start of the year, but we still expect an acceleration in 2014-15 given loose monetary policy, a downward trend in government spending (relative to GDP), explosive new technology, record high corporate profits, and a forceful housing recovery.

Actual growth was lower than forecasts for this year, but for next year we expect forecasts to be higher than actual growth.

On that forceful housing recovery:  http://www.reuters.com/article/2013/10/21/us-usa-economy-housing-idUSBRE99K0GC20131021  "U.S. existing home sales fall, price appreciation slows".  "A combination of high home prices, barely rising salaries and higher mortgage rates was hurting affordability, which hit a five-year low in September."

In other news, what will be the 'wealth effect' of people finding out their healthcare cost is doubling?  A #PlowHorseChristmas retail season? 

Without much fanfare, Wesbury has dropped the words "trot", canter and gallop from his #PlowHorse posts.

[Crafty_Dog]

The ISM Non-Manufacturing Index Rose to 55.4 in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/5/2013

The ISM non-manufacturing index rose to 55.4 in October, coming in well above the consensus expected decline to 54.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The key sub-indexes were mixed in October, but most remain above 50. The business activity index rose to 59.7 from 55.1 and the employment index grew to 56.2 from 52.7. The new orders index slipped to 56.8 in October from 59.6 while the supplier deliveries index declined to 49.0 from 50.0.

The prices paid index declined to 56.1 in October from 57.2 in September.

Implications: Well, despite all the grumbling out of Washington and from pundits claiming that the partial government shutdown would have significant effects on the economy, the private sector shrugged it off and continued to plow along. The ISM services report came in at a very healthy 55.4 in October, easily beating consensus expectations. The business activity index – which has a stronger correlation with economic growth than the overall index – boomed to 59.7. The employment index also showed good improvement rising to 56.2 in October. The most disappointing part of the report was that the new orders index pulled back, but even with the decline it remains at a robust 56.8 in October from 59.6 in September. On the inflation front, the prices paid index declined to 56.1 in October from 57.2 in September. Still no sign of inflation, but given loose monetary policy, we expect this measure to move upward over the coming year. The Federal Reserve has been far too easy for far too long. In other recent news, cars and light trucks were sold at a 15.2 million annual rate in October, below consensus expectations and down 0.3% from September. Sales are up 5.8% from a year ago, but sales in October 2012 were depressed along the east coast due to Superstorm Sandy, so a 5.8% gain from last year is not impressive. Looks like consumers may be transitioning away from gains in auto sales and more toward appliances and furniture. Auto sales should still trend upward in the next year or so, but not as quickly as in the past few years.

[Crafty_Dog]

Nonfarm Productivity Increased at a 1.9% Annual Rate in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/14/2013

Nonfarm productivity (output per hour) increased at a 1.9% annual rate in the third quarter, versus a consensus expected gain of 2.2%. Non-farm productivity is unchanged versus last year.

Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 1.3% annual rate in Q3 but is up 0.3% versus last year. Unit labor costs declined at a 0.6% rate in Q3 but are up 1.9% versus a year ago.

In the manufacturing sector, productivity was up at a 0.4% annual rate in Q3, slower than among nonfarm businesses as a whole. The slower gain in manufacturing productivity was mainly due slower growth in output. Real compensation per hour was down at a 0.9% annual rate in the manufacturing sector, while unit labor costs increased at a 1.3% rate.

Implications: Nonfarm productivity increased at a Plow Horse-like 1.9% annual rate in Q3, with hours continuing to increase at a healthy clip and output climbing even faster. However, productivity is unchanged versus a year ago and up at only a 1% annual rate in the past two years. At this point, we still don’t think the recent slow growth in productivity is anything to get concerned about. Productivity surged rapidly in 2009 as it often does very late in a recession and early in a recovery. Including that surge and the slow growth in productivity since then, it’s grown at a respectable 1.9% annual rate. In addition, we suspect the government is having a hard time measuring production in the increasingly important service sector, which means both output growth and productivity growth are higher than the official data show. (For example, do the data fully capture the value of smartphone apps, the tablet, the cloud,…etc.?) Note that on the manufacturing side, where it’s easier to measure output per hour, productivity is up at a 1.8% annual rate in the past two years. From 1973 through 1995, overall productivity growth averaged 1.5% per year. Since then it’s averaged 2.3%. Despite slower productivity growth in the past few years, we think the long-term trend is still strong, a result of the technological revolution that began in the 1980s. We anticipate an acceleration in productivity growth over the next two years. The declining unemployment rate and faster growth in wages should create more pressure for efficiency gains, while the technological revolution continues to provide the inventions that make those gains possible.

===================================

The Trade Deficit in Goods and Services Came in at $41.8 Billion in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/14/2013

The trade deficit in goods and services came in at $41.8 billion in September, larger than the consensus expected $39.0 billion.

Exports declined $0.4 billion in September, with declines in gold, gems, and fuel, offsetting a large gain in soybeans. Imports increased $2.7 billion, largely due to crude oil, cell phones & other household goods, and autos.

In the last year, exports are up 1.1%, led by a 6.8% gain in petroleum exports. Imports are up 1% in the past year, held down by a 4% decline in petroleum imports.
The monthly trade deficit is $0.2 billion larger than a year ago. Adjusted for inflation, the trade deficit in goods is $1.7 billion larger than a year ago. This is the trade indicator most important for measuring real GDP.

Implications: The trade deficit expanded in September, coming in larger than consensus expectations and larger than the government assumed when it calculated its first report on Q3 real GDP growth. As a result, it now looks like real GDP grew at a 2.6% annual rate in Q3 versus the 2.8% reported a week ago. Putting aside these short-term gyrations, the big trade story remains energy, driven by horizontal drilling and fracking. Petroleum product exports are more than seven times higher than they were in September 2007. During these same six years, petroleum product imports are only up 32%. If these trends continue and the US fixes its pipeline and refinery issues, the US will be a net petroleum product exporter by 2018. Usually, when the US economy is growing, the trade deficit tends to expand relative to the size of our economy. However, given recent energy trends, the trade deficit is much less likely to expand like that anytime soon. Along with plow horse economic growth, the trade deficit has been in a gradual shrinking trend for the past two years. In broader economic news, initial claims for unemployment insurance slipped 2,000 last week to 339,000. Continuing claims were unchanged at 2.87 million. It’s early, but we’re now forecasting November payroll gains of 155,000 for the private sector.

[DougMacG]

Wesbury from the Monetary thread yesterday regarding quantitative madness:

"It’s created uncertainty at an unprecedented level."

That caveat should be included with all of these continuing, low growth forecasts.

[DougMacG]

This list is kind of depressing.  All entrenched players, no startups or innovators.  I guess that makes sense from a guy who favors stomping out startups and innovation by way of the Buffet economic plan.

http://www.usatoday.com/story/money/markets/2013/11/17/warren-buffett-s-10-favorite-stocks/3614505/
10. Goldman Sachs (GS)
9. DIRECTV (DTV)
8. U.S. Bancorp (USB)
7. Exxon Mobil (OXM)
6. Wal-Mart (WMT)
5. Procter & Gamble (PG)
4. American Express (AXP)
3. International Business Machines (IBM)
2. Coca-Cola (KO)
1. Wells Fargo (WFC)

[G M]

[youtube]http://www.youtube.com/watch?v=63FMs504dpY&safe=active[/youtube]

http://www.youtube.com/watch?v=63FMs504dpY&safe=active

[Crafty_Dog]

The ISM Manufacturing Index Increased to 57.3 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/2/2013

The ISM manufacturing index increased to 57.3 in November from 56.4 in October, easily beating the consensus expected 55.2. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mainly higher in November and all remain well above 50. The new orders index increased to 63.6 from 60.6, while the production index increased to 62.8 from 60.8. The employment index rose to 56.5 from 53.2. The supplier deliveries index declined to 53.2 from 54.7 in October.
The prices paid index declined to 52.5 in November from 55.5 in October.

Implications: The ISM index, a measure of manufacturing sentiment around the country boomed in November coming in at the highest level since April 2011, easily beating consensus expectations, and rising for the sixth consecutive month. According to the Institute for Supply Management, an overall index level of 57.3 is consistent with real GDP growth of 4.7% annually. We don’t expect real GDP to grow anywhere near that pace in Q4, but we do expect much faster growth in 2014. The new orders index boomed to 63.6 in November, coming in at the highest level since early 2011. The employment index moved higher to 56.5 from 53.2, the highest level since April 2012. This is consistent with the plow horse growth we have been getting out of the labor market over the past few years and signals another positive report on payrolls this Friday. On the inflation front, the prices paid index declined to 52.5 in November from 55.5 in October. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. In other news this morning, construction increased 0.8% in October, led by government projects, such as schools. Nonetheless, revisions to prior months and delayed data due to the partial government shutdown show some weakness, especially in home building, during September and August. We expect that weakness to be temporary. New home construction is up 20.8% from last year while home improvements are up 13.2%. Population growth and scrappage should generate enough demand for new housing that similar gains unfold in the year ahead. The Plow Horse Economy continues to move forward.

[G M]

The unemployment rate is really at 11%. You say collapse, I say depression.

[ccp]

GM,

It is only a depression to those people who are feeling and living the pain.  To guys like Wesbury it really is just a semantics game.

[DougMacG]

At this Plowhorse growth rate, we will grow out of this economic funk, ... um ... never.

"New home construction is up 20.8% from last year."  Stated differently:  Except for the other Obama years, this year was the worst year since data has been kept in the US.  We had more new home construction during the Jimmy Carter years at 22% interest rates than we do now.
http://www.census.gov/construction/pdf/bpann.pdf

Wesbury  9-5-2013:  "What we have here is a Plow Horse Economy that looks like it may be starting to trot."
Wesbury 12-2-2013:  "The Plow Horse Economy continues to move forward."  (not 'starting to trot'?)

Plowhorses don't trot; they just pull heavy loads until they die.  A pretty good analogy, come to think of it.

[Crafty_Dog]

The ISM Non-Manufacturing Index Declined to 53.9 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/4/2013

The ISM non-manufacturing index declined to 53.9 in November, coming in below a consensus expected increase to 55.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The key sub-indexes were mainly lower in November, but all now stand above 50. The business activity index declined to 55.5 from 59.7 and the employment index declined to 52.5 from 56.2. The new orders index slipped to 56.4 in November from 56.8. The supplier deliveries index was the sole gainer rising to 51.0 from 49.0.
The prices paid index declined to 52.2 in November from 56.1 in October.

Implications: Unlike the manufacturing sector, which showed strong acceleration in November, the service sector continued to grow in November, but at a slightly slower pace. The ISM services report came in at a healthy 53.9 in November, slightly below consensus expectations but showing expansion for a 47th consecutive month. The business activity index – which has a stronger correlation with economic growth than the overall index – declined to 55.5. The employment index also declined in November, slowing to 52.5 but remaining above 50.0 for a 16th consecutive month. The new orders index pulled back slightly in November, but even with the decline it remains at a strong 56.4. On the inflation front, the prices paid index declined to 52.2 in November from 56.1 in October. Still no sign of inflation, but given loose monetary policy, we expect this measure to move upward over the coming year. The Federal Reserve has been far too easy for far too long. Today’s report, along with other data we have received this week, show the economy is doing just fine and will continue to plow ahead through the end of 2013.

"Plow horses don't trot; they just pull heavy loads until they die."

[Crafty_Dog]

Real GDP was Revised to a 3.6% Annual Growth Rate in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/5/2013

Real GDP was revised to a 3.6% annual growth rate in Q3 from a prior estimate of 2.8%. The consensus had expected a revision to a 3.0% annual rate.

On net, inventories accounted for all the upward revision in real GDP. Net exports were revised down.
The largest positive contributions to the real GDP growth rate in Q3 were inventories and personal consumption. No component was a drag on growth, although business investment in equipment was unchanged.

The GDP price index was revised higher to a 2.0% annual rate of change. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.6% annual rate from a prior estimate of 4.8%.

Implications: Forget the good headline real GDP number for a moment. The best news in today’s report was that corporate profits increased at a 7.5% annual rate in Q3 and are at a new all-time record high. Ultimately, high profits are why we still think equities are substantially undervalued and today’s data supports further gains in equities in the year ahead. Today’s attention-grabbing headline was an unexpectedly large upward revision to real GDP growth, to a 3.6% annual rate in Q3 versus an original report last month of 2.8%. However, all of the upward revision, on net, was due to inventories. As a result, don’t be surprised if real GDP grows at a rate of about 0.5% in Q4 even though personal spending accelerates. The bottom line is that the underlying pace of growth remains about 2%, but should pick up next year. Nominal GDP (real growth plus inflation) was revised up to a 5.6% annual rate in Q3 from a prior estimate of 4.8%. Nominal GDP is up 3.3% from a year ago and up at a 4% annual rate in the past two years. These figures suggest further quantitative easing is not helpful. Even zero percent interest rates are inappropriate when nominal GDP is growing at this pace. In other news this morning, new claims for jobless benefits declined 23,000 last week to 298,000. Continuing claims for regular state benefits declined 21,000 to 2.74 million. Claims are often volatile around Thanksgiving, so expect some rebound in claims next week. Regardless, plugging these figures into our models generates final forecasts for November of a 200,000 gain in nonfarm payrolls and a 197,000 gain in private payrolls. We also expect the jobless rate to slip to 7.2% from last month’s report of 7.3%.
________________________________________

[Crafty_Dog]

Non-Farm Payrolls Increased 203,000 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/6/2013

Non-farm payrolls increased 203,000 in November, beating the consensus expected 185,000. Including upward revisions to prior months, nonfarm payrolls were up 211,000.

Private sector payrolls increased 196,000 in November (+216,000 including revisions to prior months), beating the consensus expected 180,000. The largest gains were for education & heath (+40,000), professional & business services (+35,000, including temps), transportation & warehousing (+31,000), and manufacturing (+27,000). Government payrolls increased 7,000.

The unemployment rate dropped to 7.0% (7.023% unrounded) from 7.3% (7.280% unrounded).
Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in November and are up 2.0% from a year ago.

Implications: The labor market surprised to the upside in November, showing a lack of damage from the government shutdown. Nonfarm payrolls grew 203,000 in November after gaining 200,000 in October. Private-sector payrolls expanded 196,000 in November after gaining 214,000 in October. The big negative for October was a 735,000 drop in civilian employment, an alternative measure of jobs that includes small business start-ups and which is measured at a different time of the month than the payroll survey. That figure rebounded 818,000 in November. Largely as a result, the unemployment rate dropped to 7%, a new low for the recovery. However, after dropping 720,000 in October, the size of the labor force only rebounded 455,000 in November and is still below year-ago levels. This suggests the potential of a further rebound in the labor force in December/January, which may push the jobless rate back up slightly (or prevent it from falling further) in the short-term. Apart from the good headlines – better than expected payrolls and a large drop in the jobless rate – the details of the report were also good. Total hours worked increased 0.5% and are up 2.4% from last year. Average hourly earnings rose 0.2% and are up 2% versus a year ago. Combined, this means total cash earnings are up 4.4% in the past year, or about 3.2% adjusted for inflation. This is more than enough for workers to keep pushing up spending, particularly in an environment where consumers’ financial obligations are low relative to income. Also, once again a new report destroyed one of the recent negative stories about the job market. Part-time employment dropped for the fourth month in a row and is now down 137,000 from a year ago. The labor market could and would be doing better with a better set of public policies. But it is still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 191,000 while civilian employment is up 82,000 per month. Over time, we expect these two rates of job growth to converge and think the pace of growth in civilian employment is likely to accelerate.

============================

Personal Income Declined 0.1% in October, Personal Consumption Rose 0.3% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/6/2013

Personal income declined 0.1% in October, coming in below the consensus expected 0.3% gain. Personal consumption rose 0.3%, beating the consensus 0.2% gain. In the past year, personal income is up 3.4% while spending is up 2.8%.

Disposable personal income (income after taxes) declined 0.2% in October but is up 2.6% from a year ago. The decline in income in October was driven by a drop in farm income and personal dividend income.

The overall PCE deflator (consumer prices) was unchanged in October but is up 0.7% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.1% in October and is up 1.1% in the past year.

After adjusting for inflation, “real” consumption was up 0.3% in October and is up 2.1% from a year ago.

Implications: Another Plow Horse report on income and spending in October shows the consumer is doing just fine. This report is one more nail in the coffin for the supposed concerns about the partial government shutdown in October affecting consumer spending for the month. Spending rose 0.3% overall, absolutely unaffected from the drama out of Washington. Although income fell 0.1% in October, this comes after eight consecutive months of gains, and most of the decline was due to farm income which has been very volatile. Wages and salaries continued to grow and are up 3.2% from a year ago. Income growth has accelerated over the past three months, growing at a 3.7% annual rate versus a 3.4% gain the past year. Despite all the hand-wringing by pundits at the beginning of the year, there is still no evidence that the end of the payroll tax cut or federal spending sequester hurt consumers. We expect further gains in both income and spending over the remainder of the year and into 2014. Job growth will continue and, as the jobless rate gradually declines, employers will be offering higher wages. Meanwhile, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was unchanged in October. Core consumption prices were up 0.1%. Overall consumption prices and core prices, which exclude food and energy, are up 0.7% and 1.1% respectively in the past year. Both are well below the Fed’s 2% target. However, we think these price measures will move higher over the next year. QE was a mistake. The sooner the Fed starts to taper, the better.

[Crafty_Dog]

Scott Grannis's track record on the market is better than any of us here:

http://scottgrannis.blogspot.com/2013/12/corporate-profits-just-keep-on.html

[G M]

Scott Grannis's track record on the market is better than any of us here:

http://scottgrannis.blogspot.com/2013/12/corporate-profits-just-keep-on.html

Funny, anyone noticing the panicked retailers cutting prices as we have another plowhorseriffic Christmas season?

[Crafty_Dog]

Pessimists Get Desperate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/9/2013

Payrolls keep growing. Economic data stays positive. The stock market makes new highs. It’s been consistent for nearly five years. And so has the pessimism. In fact, the pouting pundits of pessimism get more determined each month, trying to prove that things are really bad out there.

We really do tip our hats to those who dive deeply into the details of job reports – even though they don’t really understand the data – to find that one nugget of negative information that will boost hits on their webpages and get them retweeted.

For example, the jobs report on Friday was one of the best of the last few years, with nonfarm payrolls up 203,000, while wages rose, total hours worked increased 0.5%, and the unemployment rate finally sank to 7%. Nonetheless, after digging through every line of the report, some pessimists found their talking point. Guess what? A whopping 41% of the job gains in November were from government.

They didn’t exactly lie, but the data point is misleading and meaningless. The number came from the Household Survey’s civilian employment data – a separate survey with a much smaller sample size than the payroll survey. This data said the US gained 818,000 jobs in November and that 338,000 of them were government jobs – voilà, 41%.
But, there was a partial government shutdown in October. That shutdown did not affect the payroll survey but did affect the household survey, which is timed differently. So, the data needs to be looked at over two months, not one.

In October, overall civilian employment fell 735,000 with a 507,000 drop in government jobs. Looking at the two months together, shows that total employment was up 83,000 while government jobs were down 169,000. In other words, the trend in government jobs continues to be down, including a drop of 534,000 in the past year according to the household survey.

Several months ago, these same pundits invented another Black Swan-style crisis when they claimed part-time jobs were dominating any job gains the US was experiencing.
Have you ever wondered why you don’t hear that theory anymore? Because part-time jobs have plummeted in the past four months and are now lower than they were last year even as total jobs are up. These politically motivated scare tactics are getting very annoying. We spend lots of time chasing down, and proving wrong, these erroneous claims. Worried investors should be spending more time finding opportunity.

We are not saying the labor market is perfect. The US should be gaining 350,000 jobs per month. But the monthly reports are relevant because they tell us about the direction of the economy, and that is clearly Plow Horse positive.

Another recent gripe is that economic growth in Q3 was all due to inventories. It’s true the upward revision of real GDP growth to a 3.6% annual rate was due to inventories. But real GDP was still up at a 2% rate even without inventories, the same Plow Horse trend of the past few years.

And, in spite of Keynesians fears that the partial government shutdown and Sequester were supposed to hurt the economy, the data once again prove that John Maynard had it wrong. On Friday, it was reported that real (inflation-adjusted) consumer spending grew at a 3.8% annual rate in October, the fastest pace for any month so far this year.

And for November, look out above. Automakers reported they sold cars and light trucks at the fastest pace since 2007, so it looks like November is going to be another solid month for consumer spending, once again destroying the theory that the fiscal cliff deal, or the Sequester, or the shutdown was going to kill the consumer.

We expect further solid job reports in the months ahead, showing continued improvement in the labor market. Rest assured, however, that after each report someone, somewhere, will find a way to twist the numbers until they scream. They won’t outright lie with the data, but they will send many investors off on a wild goose chase looking for a recession that doesn’t exist.

[DougMacG]

Wesbury:  the same Plow Horse trend of the past few years

G M: "Should crosspost that under the latest Webury drivel."
_______________________________________________

Excerpt from Political Economics, by request:

http://www.dailyherald.com/article/20110804/news/708049975/
Food stamp use nearly doubles in suburbs

The Sharp Rise in Disability Claims
http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature3.pdf

http://cnsnews.com/news/article/terence-p-jeffrey/90609000-americans-not-labor-force-climbs-another-record
90,609,000: Americans Not in Labor Force Climbs to Another Record - See more at: http://cnsnews.com/news/article/terence-p-jeffrey/90609000-americans-not-labor-force-climbs-another-record#sthash.jTKlYqis.dpuf

Women leaving the U.S. workforce in record numbers
http://www.catholic.org/business/story.php?id=46145
Unemployed women hit an all-time historical high of 53,321,000, according to the Bureau of Labor Statistics.

http://www.nbcnews.com/id/11098797/#.Uqc8ZH8v1hs
U.S. savings rate hits lowest level since 1933
http://www.zerohedge.com/news/2013-03-29/us-savings-rate-near-record-low-capita-disposable-income-below-december-2006-level

http://dailycaller.com/2012/06/07/sessions-food-stamp-spending-up-100-percent-since-obama-took-office/

[ccp]

The cognitive dissonance of Wesbury:

Consumer spending grew over 3% the highest in some time.  What about consumer debt being the highest in some time?  Any connection:

http://www.money-zine.com/financial-planning/debt-consolidation/consumer-debt-statistics/

"We really do tip our hats to those who dive deeply into the details of job reports – even though they don’t really understand the data – to find that one nugget of negative information that will boost hits on their webpages and get them retweeted"

My hat tip to an economist who has been a ceaseless bull for 15 straight years.

[ccp]

Two 2013 Nobel Winners Sound Alarm

Tuesday, December 10, 2013 5:05 PM
 Mark as Unread Flag this message
From: "Outsider Club" <ww-eletter@angelnexus.com>To: "craig price" <super65.intell@yahoo.com>
Full Headers Printable View



 

Outsider Club

Forward to a Friend
 
Having trouble viewing this issue? Click here.
 

An Investment... Better Than Silver?

We recently uncovered a powerful, moneymaking glitch in the silver market.

... One that makes buying physical silver virtually obsolete.

You see, right now, there's a unique way for you to collect double the gains silver makes... 5% gain pays you 10%... 20% gain pays you 40%... etc! With silver prices primed for another surge, you can't afford to pass this one up.

Click Here For Your Free Report.

Two 2013 Nobel Winners Sound Alarm

By Adam English | Tuesday, December 10th, 2013


As you're reading this, some of the world's best and brightest are in Stockholm, Sweden to accept their Nobel prizes in recognition of their brilliance and ground-breaking work.

Two of them are bringing very deep concerns about a coming crash with them.

Robert J. Shiller, Eugene F. Fama, and Lars Peter Hansen will take the stage to receive their awards for analyzing asset prices in finance and the markets.

Both Shiller and Fama — two men with profoundly different views — have recently been peppered with questions about the economy and markets.

Neither like what they see, and what they discussed touches on the short-sighted manipulation of assets from real estate to stocks and bonds.

Advertisement


Tiny Company Has Billions' Worth of Rare Chemical...

Thanks to a Nobel Prize-worthy discovery, early investors are looking to bank 300 times their money.


"[This Material] Could Cure Cancer."

— Popular Science
 

It's up 200% in the past four months... but there are thousands more percent ahead. Don't miss a single one!

--------------------------------------------------------------------------------
 Speculative Bubble
Robert Shiller won his prize by compiling and analyzing long-term housing sale information in the U.S., probably for the first time ever. From the data, he drew some strong conclusions. Here is a short list:
•There is no continuous uptrend in home prices in the U.S.
•Home prices show a strong tendency to return to their 1890 level in real terms
•Changes in home prices bear no relation to changes in construction costs, interest rates, or population

Yet people consistently make the error of getting into real estate because prices rise in nominal figures that are not adjusted for inflation or other factors.

The U.S. Census has proof of this going back for over fifty years. Since 1940, it has asked homeowners to estimate the value of their homes. The estimates average out to a 2% appreciation per year in real terms. The actual increase is 0.7%.

Housing sales have been strong. Existing homes are scarce, houses stay on the market for less time and prices are way up in the hardest-hit markets. It looks healthy on the surface, but it is a mirage.

Cash-only transactions have dominated the market, peaking at 60% back in May of this year and drifting down to 30% in recent months. 15-20% is average and reasonable.

Families do not pay cash. Wealthy private and large institutional investors use cash to speculate on rising values while pocketing rental income.

Advertisement


The New Face of America's Workforce

He works in the dark.

He never takes lunch breaks, sick leave, or vacations.

He gets paid 30 cents per hour, doesn't need health insurance, and can do the work of 10 men without breaking a sweat.

His name is Baxter — and he could turn every $1 you invest into $4, $8, even $15 or more.

The following video will give you all the details.

--------------------------------------------------------------------------------
 On CNBC two weeks ago, in response to hedge funds and institutional investors claiming they are long-term investors, Shiller had this to say:

...[Housing investors] are not. I think what they've learned... there is short-run momentum in the housing market, and so they know how to play momentum, but as soon as it looks like it's weakening, they'll exit.... we can't trust momentum...

How can these guys not notice how fast home prices have been going up and the fact that historically momentum is a much better play in housing than it has been in the stock market? So I'm pretty sure this is on their minds. They are not going to say this, I guess. They're not going to say they're going to dump them.

I wholeheartedly agree. Wealthy private and institutional investors are funneling unprecedented asset price gains and unfettered access to easy credit with bargain bin interest rates into home purchases.

They'll keep hyping the market until a bitter end is in sight, capture short-term gains, and leave a new batch of families indebted for life.

"Bubbles Look Like This"

Shiller was back in the press earlier this month talking about stocks as well. Talking with German news service Der Spiegel, he stated that he believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly.

As he told the magazine, "...in many countries stock exchanges are at a high level and prices have risen sharply in some property markets."

"I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," he said. "Bubbles look like this. And the world is still very vulnerable to a bubble."

Of course, the Fed doesn't see a bubble forming and is not weighing the concerns of Shiller and many other prestigious economists in their deliberations over quantitative easing.

If you're like the Fed and just look at price to earnings multiples, everything looks just fine.

However, earnings are looking good on the surface because profit margins are roughly 70% above their historic norms. If you take a look at the stock market over the past century, you'll see that profit margins inevitably return to the norm and negatively impact future earnings growth for years afterwards.

The median price to revenue ratio in the S&P 500 is now higher than it was in 2000. When profits return to normal, an abnormally large proportion of revenue will disappear and expose extremely high valuations.

Advertisement


Do You HATE What Politicians Have Done To America?

Over the years, you may have noticed how incomes have gone down... taxes, unemployment, and crimes have gone up... and there seems to be no end in sight...

And while many people blame politicians, they're only part of the problem.

In fact, there are two other groups of individuals that have been ruining America — and we're about to blow their cover.

Click HERE To Find Out Who They Are...

--------------------------------------------------------------------------------
Robbing Peter to Pay Paul
In real estate and the stock market, we can trace this growing asset bubble back to the Fed, along with government debt and policies.

It even applies to the bond market. Government debt is ballooning due to unfunded spending and entitlement programs. Manipulation of interest rates and a steady flow of easy money is driving massive inflows into risky corporate and junk bonds.

Some of the worst — payment in kind bonds that allow borrowers to repay interest with more debt — have jumped from $6.5 billion in 2012 to $16.5 billion this year.

This has Eugene Fama, who normally voices skepticism about the existence of asset bubbles at all, concerned about a debt-fueled crash.

Saturday he told Reuters: "There may come a point where the financial markets say none of their debt is credible anymore and they can't finance themselves. If there is another recession, it is going to be worldwide."

As for the exuberance over the last job report he said, "I am not reassured at all. The jobs recovery has been awful. The only reason the unemployment rate is 7%, which is high by historical standards in the U.S., is that people gave up looking for jobs. I just don't think we have come out of [recession] very well."

The simple fact of the matter is you can't rob Peter to pay Paul. Adding easy credit and cash into bloated asset markets, along with corporate and government debt, is not worth creating confidence in the market and out-sized gains for a select few.

The only silver lining is that so much value was stripped from real estate and the stock market five years ago — mostly from the lower and middle classes — that we won't see the same 60% losses. However, the longer the situation persists, the worse it becomes.

Of course, many won't see a loss at all. They aren't working. The number of employable Americans rose 2.4 million over the last year while the official labor force shows a 25,000-person drop.

Yet the Fed, other central banks and governments continue to manipulate the free market and strip future growth and earnings. Entrenched financial institutions and politicians continue to enrich themselves to maintain their wealth and power at our expense.

Hopefully, the research Nick Hodge has been doing is true and a Fourth Turning is right around the corner.


Take Care,

Adam English

Adam English
 

[DougMacG]

Initial Jobless Claims Rise | 12/12/13

Seasonally adjusted initial jobless claims increased 68,000 to 368,000 for the week ended Dec. 7, 22% higher than a revised figure released a week earlier.
http://www.thestreet.com/story/12153114/1/initial-jobless-claims-rise-bucking-latest-trends.html

Monday morning Wesbury will explain this.

[Crafty_Dog]

Third-Quarter U.S. Growth Revised Up to 4.1% Rate
The United States economy grew at an astonishing 4.1 percent annual rate, the federal government said Friday in its third and final revision of gross domestic product for the third quarter.
The rate was the fastest in almost two years.
The Commerce Department said business spending was stronger than it originally thought, leading to the revision up from 3.6 percent. Economists had expected the final estimate of growth to be unchanged from that 3.6 percent.
READ MORE »
http://www.nytimes.com/2013/12/21/business/economy/third-quarter-us-growth-at-4-1-rate-in-new-estimate.html?emc=edit_na_20131220

[DougMacG]

Margin Debt Hits Yet Another New High
http://blogs.wsj.com/moneybeat/2013/12/23/margin-debt-hits-yet-another-new-high/?mod=WSJ_Opinion_LatestHeadlines,

Last month, investors borrowed $423.7 billion against their portfolios, exceeding October’s record of $412.4 billion

Margin-debt levels rose 2.7% from the prior month. The gain coincided with the Dow Jones Industrial Average’s 3.5%.

Rising levels of margin debt are generally seen as a measure of investor confidence
-------------------------------

I wonder what would be considered synonyms for confidence in something you don't really know or have any control over...
idiocy, foolhardiness?

Interesting also that this falls into the category of unintended consequences for artificially and absurdly low interest rates.  What could possibly go wrong?

[Crafty_Dog]

Personal Income Rose 0.2% in November, Personal Consumption Rose 0.5% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/23/2013

Personal income rose 0.2% in November, coming in below the consensus expected gain of 0.5%. Personal consumption rose 0.5%, matching consensus expectations, but was up 0.9% including revisions to prior months. In the past year, personal income is up 2.3% while spending is up 3.5%.

Disposable personal income (income after taxes) increased 0.1% in November and is up 1.5% from a year ago. The gain in income in November was driven by gains in wages and salaries and personal dividend income. Farm income fell in November.

The overall PCE deflator (consumer prices) was unchanged in November but is up 0.9% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.1% in November and is up 1.1% in the past year.

After adjusting for inflation, “real” consumption was up 0.5% in November (up 0.9% including revisions to prior months) and is up 2.6% from a year ago.

Implications: Spending surged in November and was revised up in September and October, back when the media was obsessed with stories of how a partial government shutdown was going to hurt consumer spending. In the past six months, consumer spending is up at a 4.8% annual rate; in the past three months, it’s up at a 5.1% rate. We need to keep this in mind the next time politicians and pundits try to scare the public about lower government spending. Plugging these data into our models suggests “real” (inflation-adjusted) spending, will be up at a 4% annual rate in Q4 versus the Q3 average. Factoring in a potential slowdown in inventory accumulation, it now looks like real GDP is growing at a 2% annual rate in Q4. Personal income rose 0.2% in November, which was less than the consensus expected. But farm income, which can be volatile, fell again in November, holding the overall number down. Income is up a tepid 2.3% versus a year ago. But income gains were very strong late last year, temporarily making year-ago comparisons look weak. In the meantime, private-sector wages & salaries continue to grow and are up at a 3.9% annual rate in the past six months. Expect both income and spending to keep growing. Job growth will continue and, as the jobless rate gradually declines, employers will offer higher wages. Meanwhile, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was unchanged in November. Core consumption prices were up 0.1%. Overall consumption prices and core prices, which exclude food and energy, are up 0.9% and 1.1% respectively in the past year, both below the Fed’s 2% target. However, we think inflation will move higher over the next year. QE was a mistake; the sooner it’s over the better.

========================

________________________________________
New Orders for Durable Goods Rose 3.5% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/24/2013

New orders for durable goods rose 3.5% in November, beating the consensus expected 2.0% gain. Orders excluding transportation increased 1.2%, beating the consensus expected gain of 0.7%. Including revisions to October, overall orders rose 4.4% and orders ex-transportation rose 1.5%. Orders are up 10.9% from a year ago, while orders excluding transportation are up 6.1%.
The gain in overall orders was led by civilian aircraft, autos, and machinery.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 2.8% in November. If unchanged in December, these shipments will be up at a 7.5% annual rate in Q4 versus the Q3 average.
Unfilled orders were up 1.0% in November and are up 7.8% from last year.

Implications: An early Christmas present came in the shape of the November durable goods report today. New orders surged by 3.5%. Much of the gain was in the transportation sector – particularly civilian aircraft – which is extremely volatile month to month. Excluding transportation, orders were still up a very healthy 1.2%, led by a 3.8% surge in industrial machinery. Shipments of “core” capital goods, which exclude defense and aircraft, rose 2.8% in November and, if this measure is unchanged in December, will be up at a 7.5% annual rate in Q4 over Q3. Plugging these figures into our models for real GDP lifts our forecast for Q4 to a 2.3% annual rate. Both consumer spending and business investment appear to be rising at the fastest pace all year. If accurate, real GDP will be up 2.5% in 2013 (on a Q4/Q4 basis), the best since 2010. We expect faster growth of around 3% in 2014. Other great news in today’s report was that unfilled orders for core capital goods rose 1% in November, hitting a new record high. The news on unfilled orders supports our optimism about business investment. Monetary policy is loose and, for Corporate America, borrowing costs are still relatively low and balance sheet cash and profits are at or near record highs. Meanwhile, the obsolescence cycle should get more firms to update their capital stock. In addition, the recovery in home building should generate more demand for big-ticket consumer items, such as appliances. The Plow horse looks set to trot in 2014. Merry Christmas!

[Crafty_Dog]

Plow Horse, Trotting To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/30/2013

What a year 2013 has been. Remember how it started, with the media hyperventilating over the “fiscal cliff” deal and spending sequester? The vast majority of economists, pundits and politicians believe in Keynesian economics. So, it’s not surprising that higher tax rates and spending cuts sent them into an intellectual and theoretical funk.

Add to that the partial government shutdown, “debt ceiling” debate, tapering, and Obamacare! This created a whole new set of worries and if you got your economic news from TV, you expected Armageddon. But, in the end, all of this was over-hyped nonsense.

Cutting government spending actually helps the economy, the tax hikes were relatively minor and tapering has zero impact on real economic activity. “Real” (inflation-adjusted) consumer spending rose at a 5.7% annual rate in October and November, the fastest pace for any two months since 2006 (excluding “cash-for clunkers” in 2009).

Instead of falling over dead, the Plow Horse economy gained strength in the second half. Real GDP grew 4.1% at an annual rate in the third quarter and stock market indices rose to all-time record highs. We weren’t surprised. Back in January, with the Dow at 13,104, the S&P 500 at 1,426, and the 10-year Treasury yield at 1.78%, we projected a 15,500 Dow at year-end 2013, a 1,700 S&P 500, and 2.85% 10-year T-note yield.

We were more bullish on stocks than the consensus and much more bearish on bonds, even though the conventional wisdom believed that higher interest rates would hurt stocks.

By mid-May, with stocks already at our year-end targets, we lifted the forecast to 16,250 for the Dow and 1,775 for the S&P 500. Last Friday, the Dow was 16,478, the S&P 1,841 and 10-year yield closed at 3.00%.

Right now, we’re projecting further gains for stocks and more losses for Treasury securities in 2014. Our year-end 2014 forecast for the Dow is 18,500 and for the S&P 500, 2,075. Including dividends, that’s a total return of about 15%. The 10-year Treasury yield should keep trending up and hit 3.65% by year end.

For the economy, the year began with the unemployment rate at 7.8%. The consensus expected a decline to 7.4%, while we forecast 7.0%, which is the exact rate for November. (December employment data arrives January 10th.) For 2014, the consensus projects a 6.5% unemployment rate at the end of 2014. We think we’ll finish the year closer to 6%.

We were a little too optimistic on GDP for 2013. We predicted an acceleration of real GDP growth to 2.7% this year. The acceleration happened, but growth when all is said and done will come in at around 2.4%. For 2014, with housing and jobs accelerating, we expect growth very close to 3%.

Our biggest mistake was on inflation. We were bearish on gold, but bullish on the CPI. Gold fell alright (by 28%, so far), but the CPI, which rose 1.8% in 2012, will likely rise by just 1.3% for all of 2013. We still expect inflation to accelerate, but are holding our forecast at 2% for next year, with further increases in the years beyond. The link between monetary policy and inflation is often long and variable. We still believe higher inflation is just a matter of time.

Other themes for 2014 include a continuation of the housing recovery, although with more construction leading to somewhat slower gains in home prices. Meanwhile, the media will talk eventually about the “re-leveraging” of the American consumer. It’s about time, with financial obligations such a small share of income. But expect the media to make this a negative story rather than a positive one.

In the end, the most important theme of all for 2013 is that the entrepreneur came through with productivity enhancing innovation in spite of having a bloated government on its back. The result was a Plow Horse economy – one that ain’t gonna win the Kentucky Derby, but ain’t heading toward the glue factory, either.

In 2014, the Plow Horse is likely to trot a little. Yes, without Obamacare and a spendaholic Congress, things could be even better. But, like 2013, we think those who spend all their time worried about politics will miss another year of growth and rising equity values. Stay bullish and stay invested.

[DougMacG]

http://online.wsj.com/news/articles/SB10001424052702304753504579287504166323702
WSJ: Beware the Tech Bubble
Hmmm...
Maybe, maybe not.
Worry but don't panic.

Updates: Monday mornings on Wesbury. )

Wesbury: "In 2014, the Plow Horse is likely to trot a little. " "Stay bullish and stay invested."
This is so good, it doesn't matter what you invest in.  When have I heard that before and what could possibly go wrong?

[Crafty_Dog]

The ISM Manufacturing Index Fell Slightly to 57.0 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 1/2/2014

The ISM manufacturing index fell slightly to 57.0 in December from 57.3 in November. The consensus expected 56.8. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mixed in December but all remain well above 50. The new orders index increased to 64.2 from 63.6, while the employment index increased to 56.9 from 56.5. The Supplier deliveries index rose to 54.7 in December from 53.2 in November. The production index declined to 62.2 from 62.8.
The prices paid index rose to 53.5 in December from 52.5 in November.

Implications: The first report of the New Year was a good one. After booming in November, the ISM index, a measure of manufacturing sentiment around the country fell just slightly in December, coming in at the second highest level since April 2011. According to the Institute for Supply Management, an overall index level of 57.0 is consistent with real GDP growth of 4.6% annually. We don’t expect real GDP to grow anywhere near that pace in Q4, but we do expect faster growth in 2014 than 2013. The new orders index boomed to 64.2 in December, coming in at the highest level since early 2010. The employment index moved higher to 56.9 from 56.5, the highest level since mid-2011. This is consistent with the plow horse growth we have been getting out of the labor market over the past few years and signals another positive report on payrolls on Friday, January 10. On the inflation front, the prices paid index rose to 53.5 in December from 52.5 in November. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. In other news this morning, new claims for unemployment benefits decreased 2,000 last week to 339,000. Continuing claims for regular state benefits fell 98,000 to 2.83 million. Also today, construction increased 1.0% in November and 1.6% including revisions to prior months. This is the highest level for construction spending since March 2009. The increase in construction in November was led by private single-family homebuilding, while private commercial construction showed strong gains as well. In recent news on the housing sector, the Case-Shiller index, a measure of home prices in the 20 largest metro areas, increased 1% in October (seasonally-adjusted) and is up 13.6% in the past year. Recent gains have been led by Atlanta, Los Angeles, and Las Vegas. On the sales front, pending home sales, which are contracts on existing homes, increased 0.2% in November. As a result, we expect a slight increase in existing home closings in December. The Plow Horse Economy continues to move forward.

[Crafty_Dog]

http://www.ftportfolios.com/Commentary/EconomicResearch/2014/1/6/why-tapering-doesnt-matter