State and local governments are in their best financial shape since the recession, giving them leeway to cushion the U.S. economy from federal budget cuts with spending and hiring of their own.
After slashing their workforces by about half a million in the past five years, state and local authorities will add employees in 2013, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Their payrolls in the fourth quarter will be 220,000 larger than in the same period for 2012, he projects.
Their expenditures and investment also will be higher, rising by 1.8 percent, triple the increase last year, according to projections by St. Louis-based Macroeconomic Advisers. (…)
States and municipalities, which accounted for 12 percent of GDP in 2011, won’t be a drag on growth this year for the first time since 2009, said Ben Herzon, a senior economist at Macroeconomic Advisers. The economic rebound means they’re collecting more taxes, reducing the need for more spending cuts.
This would meaningfully help employment.
The average nationwide monthly apartment rent was $1,048 in the fourth quarter, up 0.6% from the third quarter and up 3.8% from a year earlier, according to a report set to be released Tuesday by real-estate research firm Reis Inc. The year-over-year increase was the largest since 2007 and a sign that landlords still have the upper hand they regained in 2010.
The nation’s apartment vacancy rate, which has declined since hitting 8%in the aftermath of the financial crisis, fell to 4.5% from 4.7% in the third quarter. The rate is the lowest since 2001’s third quarter. (…)
In the third quarter, the ratio of rent to after-tax mortgage payments was 107.8%, according to Deutsche Bank. A rent-to-mortgage ratio above 100 means mortgage payments are cheaper than rent for the median homeowner. The ratio is well above an average of 85% since 1991. (…)
Meanwhile, oversupply poses a longer-term threat to landlords. While apartment construction stalled after the housing crash, developers are rushing to deliver new apartment buildings. Industry watchers also have their eye on job creation, a key department demand driver. In the fourth quarter, roughly 453,000 jobs were created, down from 503,000 a quarter earlier, according to Reis. A lack of job creation combined with a pickup in home sales “would be a perfect storm,” for apartments, said Rich Anderson, an analyst with BMO Capital Markets.
Apartment REITS owners, manage your risk.
Small business owner confidence did not rebound in December, according to the NFIB Small Business Optimism Index. While owner optimism crept up 0.5 over November’s historically low report, the 88.0 point reading was still the second lowest since March 2010. December’s poor report resulted largely from a deterioration of labor market components, and the surprising percentage of owners who still expect business conditions to worsen in the next six months
SURVEY CONFIRMS CHINA RECOVERY
I carefully monitor China’s economic momentum which is all that matters since we can’t trust official numbers. The tone got better in September and gathered momentum throughout Q4. Not booming, just nicely picking up. CEBM’s own corporate surveys point to a continuation of the trend into the new year:
The forward-looking CEBM Industrial Expectations Index (NSA) rallied to +25% in January from +17% in December. After adjusting for seasonality, the expectations index has risen for four consecutive months, suggesting the recent recovery observed by the official NBS PMI reading is likely to continue in January.
In downstream sectors, property sales continued to exceed expectations. Property prices accelerated. Developers intend to buy more land due to limited supply. Property new starts increased and are likely to boost investment at least until 2Q13. Auto sales also exceeded expectations; auto inventory continued to decline. Some auto makers cannot replenish stocks at current production capacity. Another one or two months will be needed before capacity can rise to meet demand.
Meanwhile, up- and mid-stream sectors have stabilized in the off-season. Exports stabilized at a low level; downside risk in the export sector is limited. A weak recovery in consumer sectors continued and is expected to be sustained. Survey results confirmed our view that the current recovery is likely to persist for at least the next 1-2 quarters. (CEBM Research)
There are two risks with the China story in 2013: one is that Beijing may eventually find that housing speculation is back and decides to tighten further. The second risk is that the newly installed officials over boost infrastructure expenditures. The main risk is thus on the upside for the shorter term
December data pointed to a faster-than-expected recovery for sales of Japanese cars in China, and some auto makers expressed optimism that the worst was behind them.
The rate of unemployment in the euro zone rose to a fresh high in November as 113,000 people lost their jobs, leaving record numbers without work as the currency area’s economy continued to falter.
(…) in November, 18.82 million people were unemployed in the euro zone, a jobless rate of 11.8%, up from 11.7% in October and 10.6% in November 2011.
EUROZONE RETAIL SALES +0.1% IN NOVEMBER
Retail sales remain very weak. Total sales rose a mere 0.1% in real terms, the first uptick 4 months but mainly due to gas prices. Core retail sales were flat in November after dropping 2.1% in the previous 2 months. (Eurostat)
Real sales rose 1.2% in Germany, offsetting the October’s -1.3%. Further declines were recorded in Spain (-0.5%) and France (-0.6%) and Portugal (-1.3%)
The BRC’s monthly retail-sales monitor showed same-store sales—which exclude sales from shops that opened or closed during the preceding year—edged up 0.3% on an annual basis in December after rising 0.4% in November.
Total sales, which include sales at stores that have opened in the past 12 months, rose 1.5% in December, compared with an increase of 1.8% in November.
Orders, adjusted for seasonal swings and inflation, dropped 1.8 percent from October, when they jumped a revised 3.8 percent, the Economy Ministry in Berlin said today. (…)
At the same time, exports plunged 3.4 percent in November, marking the steepest decline in more than a year, the Federal Statistics Office in Wiesbaden said earlier today.
Export sales fell 4.1 percent in November, driven by a 6.5 percent decline in demand from outside the 17-nation currency bloc, today’s report shows. Orders from the euro area rose 0.2 percent and domestic orders gained 1.3 percent.
EARNINGS SEASON BEGINS TODAY
The official launch is today but some companies have already jumped the gun:
A total of 22 companies, 4% of the S&P 500 market cap, have reported 4Q12 results. Of these, 64% have topped revenue estimates and 68% topped earnings estimates (considerably lower than average). Aggregate earnings results have exceeded estimates by 1%, revenues have missed by 0.5%, and blended margins are down 12bps y/y. (Zerohedge)
The above is perma-bear stuff. Here’s the beat rate since 2000 (from Bespoke):
So, 68% is not so bad, even so early in the season:
The Q4 earnings season unofficially gets underway Tuesday when Alcoa reports, and expectations are currently for tame 2.8% y/y growth in S&P 500 operating profits, a small improvement from the +0.1% y/y reported in Q3. Note that a decent 70% of companies in the index ended up beating expectations in Q3, so earnings growth (at least by Thomson Reuters’ tabulations) wasn’t in fact negative as expected at the start of the reporting period. Regardless, profit growth has clearly slowed, with industrials, energy, health care and technology expected to see earnings below year-ago levels. Financials continue to lead the pack, with 14.5% y/y growth expected in Q4. (BMO)
From a market valuation standpoint, rising earnings, however tiny, would be a positive. More interesting will be corporate guidance. Here’s the hopeful chart from RBC Capital.