Personal spending looks strong, but the personal income side of the ledger still looks troubling, according to today’s December report from the US Bureau of Economic Analysis. Indeed, the year-over-year growth rate for disposable personal income (DPI) turned negative last month for the first time in four years. Personal consumption expenditures, by contrast, rose 3.6% for the year through December—the best annual jump in a year. The optimistic spin on the weak income data is that it’s suffering from a temporary bout of various seasonal distortions and/or the end of jobless benefits for 1-million-plus jobless workers last month. Only time will tell if the sharp decline in income’s trend is noise or something darker. Clarity’s going to take a couple of months at the earliest. Meantime, let’s review the numbers in search of some perspective on how the data stacks up at the moment.
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The US economic trend has decelerated in late-January, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 8.8% on Thursday, January 30. That’s still at a level that suggests that business cycle risk remains low, but the recent decline in MMRI leaves the index near its lowest level in four months. For the moment, however, it doesn’t appear that the latest decrease in MMRI is a sign of trouble for the economy. MMRI appears to be stabilizing around the 8% mark, which is still well above the 0% danger zone. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By contrast, readings above 0% imply that the markets are anticipating/forecasting economic growth.
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Tomorrow’s report on personal consumption spending for December is projected to show a gain of 0.3% vs. the previous month, based on The Capital Spectator’s median econometric forecast. That’s below the previously released 0.5% increase for November. Meanwhile, the Capital Spectator’s median forecast for December is slightly above three consensus predictions based on surveys of economists.
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Carl Richards takes a poke at tactical asset allocation (TAA) in a recent column in The New York Times. The financial planner reprises a familiar criticism of TAA, advising investors to “forget market timing, and stick to a balanced fund.” TAA, he asserts, is just market timing with a fresh coat of marketing paint. The reasoning behind his critique: it’s hard to beat the market (or a passive asset allocation mix) over time. Agreed. We should be wary of hubris when it comes to expectations of what we can achieve by outsmarting everyone else. But what Richards doesn’t discuss is the all-important gray area between the extremes of aggressive market timing and a quasi buy-and-hold strategy that purports to relieve you of the task of rebalancing, which some may call market timing.
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Fed taper will remain slow and steady: CNBC survey
CNBC | Jan 28
The Federal Reserve will continue to taper its stimulus of the U.S. economy by announcing a $10 billion reduction in its monthly asset purchases at each of its policymaking meetings scheduled this year, including the two-day session that starts Tuesday. That’s the consensus forecast from 45 of the nation’s top money managers, investment strategists and professional economists who responded to this month’s CNBC Fed Survey. An overwhelming 87 percent expect the Fed to taper by an average of $9.87 billion at this month’s meeting, roughly matching the $10 billion reduction, from $85 billion to $75 billion a month, announced after the the central bank’s December meeting.
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The recent news that Pimco’s Mohamed El-Erian is leaving the firm is yet another reminder that active money management comes with its own set of particular risks—risks that are easily dispatched with index funds. As The Telegraph observed earlier this month: “While the jury is out on what prompted Mr El-Erian’s sudden exit, one thing is certain: the world’s largest bond fund has just lost one of its most influential and formidable investors.”
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The government is expected to report this Thursday (Jan. 30) that US GDP expanded 3.1% in 2013’s fourth quarter (seasonally adjusted annual rate), according to The Capital Spectator’s revised average econometric nowcast. The projected growth rate is a bit higher than the previous 2.9% nowcast, which was published on January 3.

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Paul Krugman argues that it’s hard to tell the difference between the economies of the UK and France these days. He seems to be cherry-picking the numbers to make a point about the value (or the lack thereof) for austerity policies (the UK favors it, France less so). That’s an important discussion, but before you can have a productive debate it’s essential to look at the numbers clearly. Krugman cites GDP data across the past several years, but this isn’t very convincing for arguing that the nations are one and the same when it comes to macro trends of late. When you move closer to the recently published numbers, a different perspective emerges.

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As you can see, The Capital Spectator has a new web site. I’ll be tweaking the design in the days to come, but at the moment the primary migration to WordPress from Movable Type is complete. The seamless switch, by the way, is due to Ryan Kessen, an IT consultant par excellence who’s an authority on all things related to WordPress, web design, and a whole lot more in the land of computers and the web. Ryan managed the transition, delivering a smooth and efficient conversion to WP. If you’re in the market for an informed resource on such matters, Ryan’s my first recommendation. For more information, take a look at his web site at: www.ryankessen.com

The Capital Spectator will be migrating to a new blogging platform (WordPress) over the next day or so, which means that all the usual caveats are lurking with regards to glitches and strange things that go bump in the digital night. This seems like a good time to take a short break from the usual routine as I do battle with the tech gods and Old Man Winter. It’s back to the numbers on Monday, January 27.