U.S. Economy. The Energy Game Changer. China House Prices. EU Unemployment. EU Inflation. Earnings Guidance Poor.
THE U.S. ECONOMY: AS GOOD AS IT GETS?
It is important to monitor high frequency data to gage the economic momentum, especially when unusual factors get into play. (Sandy, fiscal cliff fears, fiscal drag, gas prices, sequester):
The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.
What you must know about the surge in personal income:
U.S. personal income surged 2.6% in December, the largest monthly increase in eight years. As today’s Hot Chart shows, this unexpected rise propelled the savings rate to a post-recession high of 6.5%. What happened in December? To avoid the higher tax grab on dividend income that takes effect in 2013, corporations opted to shower investors with special dividend payments. The windfall was an unprecedented $305 billion in Q4 2012, with $268 billion coming in December alone.
This is to say that three-quarters of the increase in personal income in
December was accounted by dividend income – well above its normal share of around 6%. As shown, the surge in December was such that dividends overtook interest rates as a source of income. This development will obviously not be sustained in Q1 2013.
So expect a double-whammy to hit households in January. Not only will dividend payouts revert to more normal levels, personal income will also be negatively impacted by a mix of higher payroll and income taxes. We expect personal disposable income to fall by more than 4% in January. This sets the stage for tepid consumption growth and a big drop in the savings rate next month. (NBF Financial)
The dividend windfall is unlikely to be spent rapidly. Keep in mind than many of these payments were merely advances on the expected 2013 payouts so dividend income will be much lower in 2013.
So beware of those HFI which rely heavily on personal income.
Nearly two-thirds of Americans between the ages of 45 and 60 say they plan to delay retirement, according to a report to be released Friday by the Conference Board. That was a steep jump from just two years earlier, when the group found that 42% of respondents expected to put off retirement.
THE ENERGY GAME CHANGER
In 2004, steelmaker Nucor Corp. bought a plant next to alligator-infested Louisiana wetlands, took it apart and shipped it to Trinidad on ocean barges. This summer, after almost two years of construction, it will open the same type of plant at the same site at a cost of $750 million.
Why? Natural gas, which is critical to these Nucor plants, was cheap in Trinidad. Now, it is suddenly plentiful and relatively cheap in the U.S. due to hydraulic fracturing technology, or fracking, a process that has unlocked natural gas from massive shale formations, driving prices down. (…)
Lower-priced natural gas has energized many parts of the country and the economy. Chemical and fertilizer companies, which use gas as both a feedstock and energy source, say lower prices have reduced costs and made the U.S. a more competitive manufacturing location. Dow Chemical Co. and Chevron Phillips Chemical Company LLC have announced plans to build multibillion-dollar chemical plants in Texas, Louisiana and other states. Energy-intensive industries, such as glass and aluminum makers, can cut costs, while companies that make pipes and drills are benefiting from new domestic demand.
Abundant natural gas has also made certain processes, considered uneconomical a few years ago, now doable and profitable.
Methanex will begin moving equipment from a plant in Chile to Louisiana’s Gulf Coast in late spring and has signed a 10-year agreement with Chesapeake Energy Corp. to supply natural gas to the plant.
Methanex CEO John Floren said he expects to move a second Chilean plant to Louisiana in coming years, although a final decision has not been made. (…)
PricewaterhouseCoopers has forecast that the shale gas boom could result in one million jobs added to the manufacturing sector in the United States over the next decade, with North America poised to become a “major, global, low-cost provider of energy and feedstocks to the chemical industry.” Majors like Exxon Mobil Corp. and Royal Dutch Shell PLC have announced plans to expand basic chemical production using natural gas as a feedstock.
China’s average home prices rose from year-ago levels for the second month in a row in January, signaling that the property market recovery is gaining momentum after last year’s slump. (…)
The average home price rose 1.2% in January from the same month a year earlier, data provider China Real Estate Index System said Friday. This comes after a 0.03% gain in December.
The average housing price in January rose 1% from December to 9,812 yuan ($1,577) a square meter, marking the eighth consecutive monthly gain on a month-on-month basis. In December, prices rose 0.23% from the month before. (…)
Compared with the preceding month, housing prices in January rose in 64 cities and fell in 35 cities, while prices in one city were unchanged.
EARNINGS WATCH: Negative Guidance Entering Q1
January was an active month for guidance from S&P 500 companies, as 49 companies issued quarterly EPS guidance for Q1 2013 and 94 companies issued annual EPS guidance for the current fiscal year during the month.
For Q1 2013 overall, 45 companies have issued negative EPS guidance, while 11 companies have issued positive EPS guidance. As a result, 80% (45 out of 56) of the companies that have issued EPS guidance for Q1 2013 have issued negative EPS guidance. If 80% is the final percentage, the Q1 2013 quarter will have the highest percentage of companies issuing negative EPS guidance since FactSet began tracking the data in Q1 2006. The Q3 2012 quarter currently has the record at 74%. (Factset)