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Manning & Napier January Perspective

January 9, 2013

During 2013 we expect a continuation of the current slow growth economic environment. The majority of our economic indicators are signaling neither the negative extremes that typically represent great buying opportunities, nor the excesses associated with an economy at risk of collapsing on itself.
-Manning & Napier

The U.S. Economy

Despite all of the fanfare surrounding “fiscal cliff” debates and the advent of cleanup in the northeast following super storm Sandy, December turned out to be a relatively quiet month in financial markets. There was a mixture of new macroeconomic data, much of which was generally encouraging, although some reports showed signs of incremental weakness. Several near-term factors were at play during the month, and likely contributed to the areas that saw softness in certain measures. For one, the after effects of Sandy probably had an impact. Some of this could be reversed in the months ahead, as rebuilding efforts take shape, but we do not anticipate that Sandy will have a meaningful impact on economic growth as we move through 2013. Meanwhile, ongoing uncertainty surrounding the fiscal cliff continued to weigh on the market psyche.

To rehash some of December’s more positive macroeconomic developments, during the month we learned that nonfarm payrolls rose a healthy 146,000 in November. The employment situation report also showed that the unemployment rate dipped to 7.7%. A 0.2 percentage point drop in the labor force participation rate to 63.6% was partly responsible for the lower unemployment rate. On the plus-side, temporary employment grew by 18,000 workers, above the previous month’s gain of 13,900. Growth in the number of temporary workers tends to lead growth in permanent employment, so this aspect of the report was good news.

The Bureau of Economic Analysis (BEA) released its third estimate for third quarter growth in U.S. gross domestic product (GDP). The report included another upward revision, this time to an annualized growth pace of 3.1%. Details of the report discussing various contributors to growth were not materially different from the BEA’s second estimate. Consumption remained the largest contributor to domestic economic expansion during the three month period.

Some other data points were a bit weaker, such as downticks in several confidence measures, namely consumer sentiment and small business optimism, all of which had been rising steadily in recent months. The Thomson Reuters/University of Michigan consumer sentiment index dropped back to 72.9 in December, a five-month low, after reaching a post-recession high of 82.7 during November. Similarly, the attitude of small business leaders soured incrementally. The National Federation of Independent Business’ Small Business Optimism Index declined to 87.5 in November from 93.1 the prior month.

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