A few facts heading into the New Year:
Come March 9th, the current bull market will turn four years old. The historical average for U.S. bull markets is 30 months. The S&P 500 ended March 9th 2009 at 676.53, its lowest point since September 12, 1996. As of writing this blog, the S&P 500 is at 1,411.03. From March 9th 2009 – December 31st 2009 the S&P rallied 65%! It continued on the bullish trend in 2010 and 2011 returning 15.06% and 2.05% respectively. With one trading day left, the S&P is set to return around 12% in 2012. Not a bad rally.
The unemployment rate fell to its lowest level since 2008 last month. As irrelevant as this number is becoming, it does still mean something: it gives us a gauge of how many people dropped out of the labor force. With all joking aside; overall, the U.S. labor market has recovered about 4.2 million of the 8.8 million jobs lost as a result of the financial crisis. The current unemployment rate is 7.7% and the Fed has committed to keeping interest rates at close to zero until the unemployment rate falls to 6.5%, provided that inflation expectations remain subdued. So as irrelevant as many of us view this figure, it should be a key measure for potential growth.
The CPI index, the key measure for inflation, has jumped 1.8% compared to a year ago. When the more volatile food and energy is stripped out, the so-called core-CPI was up 1.9% during that same time period. A reading of under 2% in core inflation is considered within the Federal Reserve’s comfort zone.
Home prices have seen their biggest rise in more than two years. The prices are up 3.6% from a year earlier. The rebound was spurred by a combination of record low mortgage rates, an improving jobs market and a drop in foreclosures to a five-year low. There may still be some room for price appreciation though, as indicated by the Case-Shiller index, which is still down 28.6% from the peak level reached in 2006.
With home prices rebounding somewhat, that could bring back one of the classic engines of the economy; construction. Last month, there were 861,000 housing starts (seasonally adjusted) – that’s a 21% increase from last year. Good news/bad news… Construction boosts the economy but housing starts brings more supply to the market. Economics 101 tells me that continued increase in housing starts, with all else remaining the same may dampen any potential price appreciation in existing homes. But that remains to be seen.
It may be too early to signal a rise in income and wages, but that has been the trend at least the last couple months. Between October and November, seasonally-adjusted wages and disposable income have both increased by 0.6 percent. Certainly not a revolutionary change, but its more than we have seen the last couple years, and with unemployment dropping, it makes sense that income would also creep up.
As I experienced and I am sure you experienced during the holiday season, our spending increased. Seasonally-adjusted personal consumption expenditures went up by 0.4 percent between October and November. Personal consumption accounts for about two-thirds of GDP.
Gross Domestic Product (GDP), is the broadest measure of our nation’s economic health. With the help of consumer spending and probably more notable, a surprise growth in our exports to other countries; our economy grew at an annual rate of 2.7% from July to September. Keep in mind, the target rate of growth tends to be 3%, anything lower than 3% isn’t much to get excited about. With that said, we are growing and we are growing at a slightly faster rate than we have in the last couple years.
We’ve seen better, but we’ve been through worse.
Thank you all for your business in 2012 and Happy New Year.