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Economic Update for the Week of 11/2/2012

The storm of the Decade, Hurricane Sandy hit killing about 60 people and causing billions of Dollars in damage. You may hear pundits talk of the positive effect on the economy from the rebuilding efforts however it is important to understand that wealth destruction came first. Funds used to rebuild have to come from somewhere be it savings, insurance companies, municipal borrowings, federal taxes, etc. So any positive economic results would surely be offset by the original wealth destruction that occurred as a result of the storm. 

Despite 171,000 jobs being created, the Bureau of Labor Statistics increased the unemployment rate from 7.8% to 7.9%. This is the last unemployment report before the Presidential election and 7.9% is exactly what is was in January of 2009 when Obama took office. The 171,000 number is seen as a boost even though it is barely enough to keep up with new employees entering the workforce. Furthermore, this number includes an "adjustment" from the birth/death model which includes 90,0000 jobs. What continues to be troubling is the long-term unemployed, which is those without a job for more than 6 months is remaining steady at 40% of unemployed, which is double the long-term average. Unemployment isn't getting worse, but it is also not getting better. 

Personal spending and incomes were higher but so is inflation offsetting any gains in wages. After adjusting for inflation, personal income was flat while personal spending was slightly up. The markets will surely be awaiting holiday sales to see how people are spending. 

The Case/Shiller Home Price Index posted a 2% year over year gain for August 2012. This is beginning to show signs of modest improvement in housing. The question remains whether it is bottom bouncing or the emergence of a new trend. 

The Chicago Purchasing Managers Index came in at 49.9 (above 50 is growth) masking the underlying weakness in new orders which was reported at 47 which is clearly in contraction. The last two of these readings were under 50 which continues to indicate weakness ahead which dovetails with lowered Q4 forecasts from corporate America. 

Chinese companies are racking up accounts receivables with other Chinese companies with 66% of listed companies reporting a rise in these A/Rs. This means that Chinese companies haven't been paying their bills as fast. If China is in fact still a growing company, then why the delay on payments? Hmmm. Part of the cause is that the US and Europe are the largest buyers of Chinese goods and as we slow down, Chinese companies sell less and thus have less money to pay their suppliers.

All eyes are on the election at this point.

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