Weekly Economic and Financial Commentary

The New Year always seems to usher in an air of optimism and this year has been no exception. Better reports for the housing sector, an improving job market and generally positive news on holiday retail sales had raised hopes that the recovery was shifting into higher gear. Week two has brought in a more sober view. We have repeatedly noted our concerns about the narrow span of improvement in economic activity, the role that seasonal factors are playing in exaggerating that improvement and the lack of improvement in underlying fundaments in our analysis and outlook for 2012. This week's data generally support that view.

Early in the week, we received news that consumer credit surged by $20.4 billion in November, which was nearly three times more than the consensus estimate and the largest gain in nearly 10 years. The growth reflects increases in credit card use, car loans and student loans. Some analysts looked at this report as evidence consumers are once again confident enough to take on additional debt. This is partly true. The reduced pace of layoffs and drop in the unemployment rate are likely bolstering the confidence of folks who have jobs and they may be inclined to take on a little more debt. We fear the real driver, however, has been a lack of real income growth and higher prices for necessities, most notably food and gasoline, which have caused consumers to reduce saving and take on more debt.

The lack of real income growth and decline in the saving rate are the big reason why we expect consumer spending to slow in the first half of 2012. The latest retail sales data suggest this moderation may already be underway. Retail sales rose just 0.1 percent in December, following a 0.4 percent rise in November. Holiday sales got off to an unusually strong start, amid heavy discounting and longer store hours. Sales slowed in December, however, even though gasoline prices plummeted, freeing up a few more discretionary dollars. Sales, excluding gasoline, building materials and motor vehicle dealers fell 0.2 percent in December, marking the largest drop since July 2010. With the drop, core retail sales ended the fourth quarter slightly below their fourth quarter average, which means that it will be a real uphill battle for consumer spending to post even modest gains in the first quarter. http://forexcapitalmultiplier.com/

The employment data also look a little less robust this week. The JOLTs data show a slight pick-up in hiring and continued slide in job openings. The JOLTs data do not show anywhere near the improvement the payroll or household employment data do, which lends credence to our view that recent gains have been exaggerated by the seasonal adjustment process. Along those lines, the return to more normal seasonal factors appears to be behind the jump in weekly unemployment claims back up to 399,000 during the first week of January. Data on international trade and inventories also suggest growth was more modest during the fourth quarter and tend to refute claims that the pace of economic recovery is accelerating. We have slightly reduced our estimate for fourth quarter real GDP growth to 3.4 percent. http://fx-profit-predictor.com/index.php/FOREX-PROFIT-PR ...