ECO COMMENT: Top 10 Macro Stories Last 2 Weeks

  1. US Data Surprise Index ends 2012 in bullish territory.  The weekly index remains quite volatile. After a second week in the 40% range -indicating a majority of US economic report missing expectations - last week 5 of the 7 indicators I tracked beat them. The 4-week average trend index jumped back above 50% after snapping a 10-week >50% streak. The 4th quarter was particularly volatile, but on average economists have been too pessimistic for most of it, which may at least partially explain the market resilience.   
  2. US Consumer Confidence is sliding further off the 'Cliff'.  Both the University of Michigan and the Conference Board surveys showed further deterioration in sentiment in December. Both surveys are back where we were in the summer erasing all of the 'QE3' bump. In both surveys it's the 'Expectations' component that is falling the fastest, but in both cases we are still well above the levels we saw last year during the Debt Ceiling crisis.   
  3. US housing rebound shows no 'Cliff' impact, yet.  All 3 November home sales measures beat expectations in the past 2 weeks and the trends are very similar across the board. New Home Sales are up 11% so far this year, Pending Home Sales 12% and Existing Home Sales a slightly stronger 16%. Housing values also continue to recover. The FHFA index is up 4.5% this year through October; Case/Shiller shows a 5.3% gain. Finally, the NAHB index of home builder sentiment also beat expectations; that index has now regained almost 60% of the decline during the housing market crash.
  4. US 3rd quarter GDP is revised up even further.  Surprisingly, US GDP growth was revised up for a second time to now 3.1% from the initial 2% estimate; a more than 50% increase(!); the main driver was a stronger contribution from net exports. However, the underlying story remains unchanged. Private domestic demand slowed sharply in Q3 and the faster headline GDP growth was driven entirely by stronger government spending, faster inventory accumulation and improving exports.      
  5. US household income and spending rebound after 'Sandy' hit.  Personal Income increased at the fastest pace in 9 months. The improvement in Real Disposable Income is even more impressive; in the 3 months through November it's growing at a robust annualized rate of 3.4% compared to a -0.2% contraction in the previous 3-month period. Real Expenditures was equally strong, up 0.6% in November, the best month in more than 3 years(!). The last 3 months saw real spending growing at a 3.5% rate compared to just 0.7% in the previous 3-month period. For the current quarter, real consumption is on track to grow close to 2% and my Q4 GDP forecast has gone up to 1.9% from the prior 1.3% call.   
  6. Japan struggling to shake 'Double Dip' recession.  The All Industry Activity Index, a monthly GDP proxy, increased 0.2% in October matching expectations and driven predominantly by stronger industrial output. However, the latter fell again sharply in November and service sector activity is flat at best suggesting the economy is likely to remain stuck in recession in the current quarter.
  7. More evidence of a tentative rebound in Germany.  The Ifo Business Climate index increase for the 2nd straight month moving back into expansion territory. All of the improvement stems from the 'Expirations' component, yet the index suggests at worst cut-backs in industrial output should stop and probably some rebound in investment activity is likely in the coming months preventing a further slowdown in Germany's growth momentum.
  8. Diverging European Consumer Confidence trends at year's end.  Sentiment in Germany and the UK deteriorated in December. In the UK the survey reversed a sharp improvement in November, falling back to the bearish trend we have seen all year. Germany's confidence levels remain high, but are losing some of that strength. The December surprise was France where confidence actually improved despite evidence of further macro deterioration - maybe the Christmas spirit.   
  9. UK budget deficit unchanged this year despite ongoing austerity.  November's borrowing requirement exceeded expectations once again. Excluding the Royal Mail Pension Fund dodge (assuming the assets, but ignoring the liabilities) the UK budget deficit is on track to increase again this Calendar Year. Probably not surprising since the economy stagnated following 2 years of moderate economic growth, during which the deficit improved.    
  10. Asian Industrial Production trends show gradual recovery.  Output levels in South Korea and Taiwan beat expectations in November showing accelerating production from a year ago; Singapore missed, but also reported stronger output growth. The only disappointment was Japan, where production fell again sharply after a brief rebound in October.  

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