Standing Firm on the Edge

December 10, 2012

Our overall macro view remains one of caution. We expect continued very slow inflation-adjusted growth in the U.S. economy in 2013, on the order of 1% to 2%, with risk to the downside.
-Matt Freund, senior vice president, USAA Investments

The financial markets were generally listless in a week dominated by little progress on the "fiscal cliff" negotiations in Washington, combined with relatively mixed economic releases.

Little progress has been made on the fiscal cliff front as both sides continue to stand firm behind their proposals and positions, and it appears the possibility of a nonagreement is becoming higher the longer the talks drag on. We believe that some form of an agreement will be reached, but the question will be whether or not it addresses short-term uncertainty. In other words, a resolution that "kicks the can" into next year will likely disappoint and lead to heightened volatility in the coming weeks.

On the positive side were November total vehicle sales, coming in at a strong 15.5 million units but partially aided by replacement demand from Hurricane Sandy. The ISM non-manufacturing survey of 54.7 for November represented an increase from the prior month, was above expectations and indicated continued expansion in the service sector of the economy. The November jobs report showed a gain of 146,000 in total non-farm payrolls, much higher than expected. With a decline in the overall labor force, it was enough to move the unemployment rate down to 7.7%. The labor market continues to heal but has a long way to go to reach full employment.

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