December Leading Indicators, January UI Claims, KC Fed

  Data Buoys Equity Markets, Equity Markets Buoy Data

  • The Leading Economic Index for December gained 0.5 percent as labor data normalized post-Sandy.
  • Initial Claims for Unemployment Insurance fell by 5,000 for the week ending January 19 to hit 330,000.

Favorable economic data lifted U.S. equity prices this morning, highlighting what has largely been missing from the U.S. economy since 2006, a positive feedback loop between improving economic metrics and household wealth generation. As measures of “real” economic activity improve, such as job creation, manufacturing output, home sales and automobile purchases, households are beginning to feel wealthier.  Real estate prices are going up, and the stock market continues to climb, generating wealth. Wealthier households buy more houses, cars and other things, including stock certificates, further pushing up house prices and equity prices. This momentum in the household sector is growing at a critical time as federal taxes go up and federal spending appears likely to be cut back due to the sequester. Fiscal tightening is a drain on household income and a counterforce to the momentum in the household sector. In the economic tug of war between fiscal tightening and improving conditions for households, today the household sector gained a few inches back. The tug of war is not over, but so far data support the forecast for ongoing economic expansion through the first half of 2013 despite fiscal tightening. Stay tuned.

The Leading Economic Index for December gained 0.5 percent, driven by the post-Sandy improvement in initial claims for unemployment insurance. Financial indicators, equity prices and building permits were also positive contributors to the index. In addition to the gain in the Leading Index, the Coincident Index increased by 0.2 percent in December, and the Lagging Index gained 0.7 percent. Gains in equity prices in January and declines in UI claims are favorable leading indicators of the Leading Index. Initial claims for unemployment insurance fell by 5,000 for the week ending January 19, hitting 330,000. The post-Sandy improvement in claims is looking more solid. An upside surprise to job growth in the first quarter would go a long way toward reducing the concern about fiscal tightening. The Kansas City Federal Reserve Manufacturing Index contracted modestly in January, indicating deteriorating manufacturing conditions in the plains states. The KC index has declined for four consecutive months.

Market Reaction: Equity markets are up. Treasury yields are up at the long end of the yield curve. NYMEX crude oil is up to $95.96/barrel. The dollar is up against the yen and down against the euro.

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Click here for a PDF version of the Comerica Economic Alert: Leading Indicators 012413

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