This year has gotten off to an onerous beginning with the US market being dragged down almost 6 percent to begin 2016.
It brings me back to some misspent days of my youth at the racetrack. We had the opportunity to see this behemoth of a horse Secretariat strutting around the track. He was a big beautiful muscular beast. We just knew he was our horse and we all ran for the window to place our bets, to show of course (which is 3rd place or better).We didn’t have much money so we had to play it safe. Lucky for us we played it closed to the vest. For on that day he got trapped on the rail and even though he thundered down the final stretch he couldn’t make up the lost time and came in second beaten by a horse named Onion. While disappointed we all came out winners which meant a delicious bowl of clam chowder for us all once we cashed in.
That’s where we are currently in this market. The market broke out of the gates poorly. There’s some congestion impeding our path starting with the sell-off in China’s markets coupled with light volume. But, as you all are aware investing is not a sprint and we haven’t even reached the first turn. The economy remains in good, not great, mode. Job creation is still solid. Consumer spending and confidence are both gaining while low energy prices will provide trail winds that will remain supportive.So, let’s look at where we are.
GDP-Fourth quarter GDP will be released later on this month.Estimates are for a one and a half to two percent gain. If this pans out we’ll have booked another not so great year for the expansion.The primary drags on growth were front and center: energy, mining,inventories and cuts to government spending (the last doesn’t appear to be a bad thing). The new budget just inked in D.C. has put to rest further fears (by some) of austerity and responsible spending of our tax dollars. That should allay fears of continued drag from cuts to government spending and possibly add ½% to 5/8% to GDP growth going forward. As well, the draw down on inventories bodes well as companies will need to restock those shelves in the coming quarters. We’d anticipate a continuation of this good not great environment and look for 2016 GDP to fall within a range of 2 1/2% -3%.
JOBS-Job creation remains on a solid footing adding 252,000 jobs in November followed by December’s whopper of +292,000. The participation rate ticked up +.1 and the unemployment rate stayed steady at 5%. Hourly earnings along with the workweek remained largely unchanged. The big gains were seen in good paying jobs such as professional and business services adding 73,000. Construction add 45,000 and healthcare tallied a 39,000 gain. The argument that the jobs created are all of low quality, is slowly being put to rest. This is good news going forward as well.
Leading Economic Indicators (LEI)-LEI for November was up +.4% following October’s +.6%. Strength was noted in building permits and interest spreads. The rate of growth has moderated some though this data point suggests a positive outlook for this just completed fourth quarter and into the new year. This would also lead investors to dismiss rumors or arguments for an imminent recession for the US.
ISM Manufacturing Index (ISMM)-ISMM dropped -.4% to 48.2 in December from November’s 48.6%. A reading below 50 reflects a contraction in the sector. The hit to the ISMM index came from the obvious sectors, energy and commodities. The new orders index was a rare bright spot rising slightly to 49.2% while the employment index dropped -3.2% to 48.1%.The only saving grace domestically lies in the fact the US economy is not overly reliant on the manufacturing sector to drive growth along with the drag on the sector from lower energy and mining.
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