11/8/13

 Zenith Portfolio Strategies Economic update

 GDP

            The quarterly 2.8% 3rd quarter growth rate is encouraging although inventories contributed 1% to that and so already some economists such as  Jan Hatzius at Goldman are revising downward their 4th quarter numbers since inventories are not likely to be a major contributor again in the very next quarter.

           A closer look at other components while still positive is somewhat sobering.

1. Year over year  3rd quarter comparison for the last three years;

  • 2013-1.6%
  • 2012-3.2%
  • 2011-1.5%
  • 2010-3.0%

2. Consumption is approximately 70% of GDP. Here are the year over year numbers.

  • 2013-1.8%
  • 2012-2.2%
  • 2011-2.5%
  • 2010-2.0%                                                                                             

Employment

Total non-farm payroll jobs created were well above estimates.

  • Jobs created 204,000
  • Unemployment rate increases from 7.2% to 7.3% due to the next point
  • Labor participation rate 62.8% a low level that has not been seen since 1978

            While the increase in jobs is a good sign the lower labor force participation rate is a very serious worry to us.  The GDP numbers and employment picture lead us to believe that any taper would be minimal whether it starts in Dec, March or later next year. Also, keep in mind that a taper does not equal a net stoppage. It simply means that instead of driving 140mph , they are potentially going to slow to 120mph. That is still speeding.  

Sincerely,

Tom Koehler-CIO

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