Economic Notes – February 11, 2013

February
11

Written by: Jon McGraw

It was a relatively light week from an economic standpoint.

(+) Non-manufacturing ISM for January was right at par with consensus, at a reading of 55.2 versus an expected 55.0. The look-ahead components of new orders and current business activity were weaker than in December, but remained in growth mode. The employment piece rose a bit as well. Additionally, anecdotal comments from the survey were generally positive, which was a welcome change considering overall business sentiment at year-end.

(-) Factory orders for December were a bit weaker than expected, up +1.8% versus a forecast +2.3%. Core capital goods were revised down slightly and inventory buildup was weaker than in prior months.

(-) Non-farm productivity in the fourth quarter of 2012 fell by -2.0%, relative to expectations for a -1.4% drop. This was primarily the result of a lower level of output compared to hours worked, so a change in the numerator changed the ratio. Hours worked grew at just over a +2% annualized rate, so have normalized to some extent. Unit labor costs rose by +4.5% (above the expected +3.0%) for the quarter and +1.9% for the full year.

(+) The U.S. trade deficit narrowed in December to -$38.5 bil. versus a forecast -$46.0 bil., as exports gained roughly 2%—offset by a similar decline in imports. This monthly series is quite volatile, however, and follows a sharp increase in November imports perhaps due to Hurricane Sandy rebuilding effects.

(-) Wholesale inventories fell -0.1% for the month of December, which was a bit of a disappointment relative to the +0.4% increase expected. Most of this was due to a drop of nearly 4% in the auto sector inventory count.

(-) Initial jobless claims came in at 366k for the Feb. 2 ending week, which exceeded the consensus forecast 360k. Continuing claims for the Jan. 26 ending week came in at 3,224k, which was a higher than the 3,197k expected. The claims figures for the prior week were also revised higher, so a bit of a negative showing on both counts relative to recent weeks.

Market Notes

In U.S. equities, technology and consumer staples outperformed by the widest margins, while telecom and materials lagged. Domestic markets overall gained with on balance earnings that exceeded expectations—so far, out of nearly 350 companies that have reported, 75% have topped estimates (albeit through lowered figures). These earnings surprises have distributed evenly throughout the S&P to a large extent, but utilities, telecom and financials have shown the worst ratios of disappointments to surprises during the last quarter.

Foreign stock markets were led by strong performances in Japan and other developed Asian nations, such as Taiwan, South Korea and Singapore. Developed Western Europe brought up the rear with investor concern brought out by accusations of Spanish government corruption and uncertain prospects from Italy’s upcoming general election. Additionally, the incoming Bank of England governor Mark Carney made comments alluding to judicious rather than aggressive use of easing, which kept interest rate expectations higher and bond prices tempered.

In fixed income, lower yields went hand-in-hand with strong weeks in long credit and long government bonds. Emerging market debt gained, while most foreign developed market indexes ended the week lower in keeping with the news issues mentioned above.

Retail and residential REITs in the U.S. led the week in that category, while Europe and Asia both lagged. On the year so far, it’s been a similar story, with U.S. industrials up strongly (on par with U.S. equities), with retail and residential also doing well. Non-U.S. REITs have lagged.

Broad commodity indexes were about a percent lower, with general energy performing a bit worse—down 2%—while precious metals were generally flat, and the best performing contracts on the week. Year-to-date, energy commodities have moved largely higher, while several of the grains have corrected due to strong harvest numbers in South America and higher inventories in the U.S.

Have a great week!