What I’m Watching This Week-29 May 2013

Shrugging off the slowdown

The year’s robust start faded late in the first quarter across many key economic indicators, but the recent set-back is likely a temporary one as the U.S. markets continues to show little resistance and indeed have moved higher. The US economy continues showing a renewed capability to shrug off fiscal chains and respond favorably with higher stock prices and rising home values. Smells like…optimism. New home sales saw their strongest increase since July 2008 as a 2.3% jump in April put sales 29% ahead of April 2012, according to the Commerce Department. Also, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said prices on homes bought with loans from the two companies were up 1.3% in March.

No, we are not out of the woods yet and no the economy hasn’t reached any clear ‘break free’ momentum to surge forward without further central bank accommodation and assistance. Ongoing fiscal drags including the sequesters spending constraints and the impending debt ceiling are contributing factors as retail and professional investors agonize over monetary policy plans, and they question whether rising stock prices and bond yields signify increased market economic optimism and an ability to withstand a moderation of Fed asset-buying plans. Short-term ups and downs in overall economic activity are to be expected and increased volatility in the markets will corroborate the economic activity, positive or negative.

I remain optimistic. The remainder of the week’s economic data will provide substantiation regarding if the 2.5% initial estimate of Q1 economic growth holds, and whether consumer spending was affected in April by payroll taxes and federal budget cuts. Will we see a pullback of any significance if the data arrives not so positive? That remains to be seen; it does, on the surface appear that economic demand has been awakened and that more jobs are being added each month, but that could also be a brutally efficient head fake.

Have a great week!

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