SCOREBOARD: Beige recovery

US stocks remained flat overnight, despite positive industrial production figures and decent data from the Beige Book.

The good news is that the US Beige Book confirms what we already know. That’s not to dismiss the Beige Book, I’m just noting it as another piece of supporting evidence. Anyway, the Beige Book notes that "economic activity has expanded since the previous Beige Book” (back in November) and it was especially positive to note that all 12 Fed districts reported growth in consumer spending.

Other interesting snippets included: "Existing residential real estate activity expanded in all districts that reported; growth rates were described as moderate or strong in nine districts.” However, on a more sombre note, "reports of manufacturing activity were mixed overall, with six districts growing since the last Beige Book, three districts contracting, and two districts reporting little or no change.”

The industrial production figures, also released last night, suggest a stronger picture and I would go with that rather than anecdote. Industrial production itself was up 0.3 per cent, manufacturing 0.8 per cent in December after a 1.3 per cent surge in November. As I’ve mentioned before, simply liaising with business leaders is not a good way to try and determine the lay of the land. People’s perceptions are influenced by consensus and the media – sentiment – and we know both of those have been excessively pessimistic. But what people say and what they do are often very different. Otherwise, the labour market conditions were noted as being unchanged, with many companies noting a delay in hiring due to fiscal cliff concerns.

All up not a bad report although it was another nondescript session for markets. With about an hour to go, the major US indices are pretty much flat, taking little comfort from neither the upbeat beige book nor decent profit results from banks such as JP Morgan and Goldman Sachs – revenue up 50 per cent! So the S&P500 is 0.1 per cent higher at 1473, the Dow is off 0.2 per cent at 13510, while the Nasdaq is up 0.4 per cent at 3122 – boosted by a surge in Apple. It was no different in Europe with the Dax and CaC up 0.2 per cent and the FTSE100 off 0.2 per cent.

There was next to no movement in price action elsewhere, with the exception of crude which rose a further 1 per cent to be at $94.20. Then the Australian dollar traded on a 30 pip range and ended little changed at 1.0567. It’s a similar story for the euro at 1.3294, although sterling fell nearly 50 pips to 1.6003 and yen is at 88.50. US Treasuries too traded on narrow ranges with the 10-year bouncing around 3 bps to sit at 1.825 per cent as I write. The 5-year is at 0.74 per cent, while the 2-year is at 0.25 per cent.

There are a few other things I think it’s worth drawing readers attention to. In Australia, it’s record car sales and Country Road’s bumper profits – like-for-like up 10 per cent or so. I highlight them because there is this persistent push by underperforming retailers to try and convince the rest of the world that the cause of their underperformance rests with consumer caution – they’ve put their wallets away. Obviously this can’t be the case – consumers are spending, as I have highlighted consistently. Just not at those underperforming stores. Poor management, an inability to compete and out-dated business models. That’s where underperforming retailers need to look.

Overseas it’s important to note that inflation isn’t coming down as expected by policymakers. In Europe, the persistence of inflation above target – 2.2 per cent – during a recession should be cause for alarm. Similarly, despite the Fed’s complacency, the situation isn’t much better in the US. Core inflation was stuck at 1.9 per cent in December, which given my view of the US isn’t all that surprising, but it is if you buy the Fed's view of a sluggish disappointing recovery with weak jobs growth.

The important numbers for Australia today come from the labour force survey. In a week where some big companies have announced job cuts, the consensus forecast is that 4,500 jobs were created in December after a 14,000 increase. Indeed all through 2012 the consistent expectation was that jobs growth would collapse and the unemployment rate surge. Instead, we find that the unemployment rate remained at 5.2 per cent and jobs growth was around trend. Despite job cut announcements I haven’t seen anything that would or should change that. The unemployment rate is forecast to rise to 5.4 per cent in December

Tonight, watch out for US housing starts, jobless claims and the Philly Fed index. There’s not much out of Europe, construction work is about it.

Have a great day…

Adam Carr is a leading market economist.

See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

@AdamCarrEcon on Twitter.


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