Last week I recapped some of the more interesting titles that appeared in The Capital Spectator’s Book Bits column that runs on Saturday mornings. Here’s Part II of the year-end review of economic and finance books from 2014 that deserve a second look…
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The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to rebound to a +0.12 reading in the November update that’s scheduled for Monday (Dec. 22), based on The Capital Spectator’s median point forecast for several econometric estimates. The projection is moderately above the -0.01 reading for October, which reflected a fractionally below-average pace of economic growth for the US relative to the historical trend. Only values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s estimate for November as a guide, CFNAI’s three-month average is expected to remain at a level that’s historically associated with growth at an above-trend pace.
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It’s all about real estate investment trusts (REITs) these days when it comes to bullish performance among the major asset classes via our standard list of ETF proxies for the key slices of global markets. US REITs, to be precise, are enjoying a melt-up moment. But don’t confuse the stellar results with foreign REITs, which are posting only modest gains. US shares of securitized real estate, by contrast, have roared higher over the trailing one-year period (defined here as the past 250 trading days). Although prices have eased in recent days, Vanguard REIT (VNQ) is ahead by a hefty 30.4% through yesterday (Dec. 18). That’s twice the rise for the second-best performer, US equities, based on the Vanguard Total Stock Market (VTI).
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● Jobless claims still signal strong U.S. hiring | MarketWatch
● US service sector output growth hits 10-month low in Dec | Markit
● U.S. Leading Economic Index Rises 0.6% In November | RTT
● Philly Fed survey shows factory activity slowed in December | Reuters
● German consumer morale highest in 8 years heading into Jan | Reuters
● Dollar index near 5-year highs amid U.S. optimism | Investing.com
● Japan govt says economy in “moderate recovery” trend | MNI

Yesterday’s update of the Federal Reserve’s quarterly economic forecast is a minor triumph for optimism. The central bank still expects that US GDP in 2015 will increase in the range of 2.6% to 3.0%, unchanged from its previous estimate in September. That’s a mild expansion, but it’s a step up from the Fed’s 2.3%-to-2.4% GDP outlook for this year. In a word, progress. Forecasting year-ahead GDP is subject to any number of risks, of course, and so it’s best to take the Fed’s prediction with a grain of salt. Yet it’s clear that the bank’s policymakers are becoming more confident that the US economic expansion will strengthen a bit in the year ahead. Events abroad may intervene and render the current outlook null and void, but based on what we know today the US macro trend is on track to start the new year with a moderately improving tailwind.
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● US, Cuba restore ties after 50 years | Reuters
● Experts on N. Korea see regime’s fingerprints on Sony attack | LA Times
● Putin’s Economic System Frays Further | Bloomberg
● North Sea oil industry ‘close to collapse’ | BBC
● Global life expectancy has ‘increased by 6 years since 1990’ | MNT
● German Business Confidence Rises With Growth Signs | BusinessWeek
● Swiss Central Bank to Adopt a Negative Interest Rate | NY Times
● British Retail Sales Growth Accelerates Unexpectedly | RTT
● Greece faces crisis on prospect of snap election | CNBC

The global economy is under pressure these days, suffering from a troubling mix of heightened geopolitical risk and wobbly macro reports. Despite the challenging environment, the US economy still looks resilient, based on the current numbers through November. Tracking a diversified set of indicators shows that macro momentum was solidly positive through last month. But at a time when the economic trend for the US appears to be strengthening, new threats are on the horizon. In addition to the familiar and long-simmering challenges facing Europe and Japan, a crisis may be brewing in emerging markets in the wake of sharply lower oil prices. As a result, blowback risk is rising for the developed world. The US isn’t immune to the turbulence, but the downside risks for the near term are limited due to the country’s positive macro momentum of late.
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● Bond Investors Are Skittish Over Emerging Markets | NY Times
● Three most important things to watch during Fed meeting | MarketWatch
● Memories of 1998 May Persuade Yellen’s Fed to Keep Rates Low | BusinessWeek
● Weakened Kremlin, plunging ruble create unpredictable Putin | Globe & Mail
● Eurozone Inflation Confirmed At 0.3% | RTT
● U.K. Aug-Oct Jobless Rate Falls Less Than Expected | RTT
● Greece Parliament Set For First Presidential Vote Wednesday | MNI

Today’s US economic releases – housing starts and business survey data for the manufacturing sector – suggest that the macro headwinds are increasing. It’s premature to dismiss the numbers du jour, but the previously released reports in recent weeks – payrolls, retail sales, and industrial production – offer a sharply positive counterpoint. For the moment, the big picture for the US still looks encouraging, albeit slightly tarnished relative to what we knew 24 hours earlier. But before we consider the reasoning for maintaining a positive outlook on the US economy, let’s briefly review the latest figures and then move on to considering if today’s news add up to a genuine warning for the business cycle.
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Mr. Market can be an emotional fellow at times, confusing and confounding the casual observer who tries to make sense out of market action that can appear nonsensical at times… right now, for instance. Indeed, the US stock market has been tumbling since its Dec. 5 peak – a slide that’s unfolded amid an impressive run of US economic releases – the best, arguably, in several years. What gives? Judging by Mr. Market’s reaction of late, there’s danger on the horizon for the economy. The hard data, however, suggests otherwise. What the heck’s going on? Is Mr. Market off his meds again? Or is there some logic buried in the current macro-market mashup?
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