The last two weeks I reviewed investment performance in 2013 (2013 Review: Significant Events and 2013 Review: Asset Class & Sector Edition). This last post in the annual review series will focus on economic indicators.
The employment situation continued to improve in 2013 (Exhibit 1). The U.S. economy added 2.18 million new jobs (182,000 a month), slightly fewer than 2.19 million in 2012. Total employment increased 1.6% which was better than 1.0% population growth. The unemployment rate ended the year at 6.7% in December, the average of monthly rates was 7.4%. U-6 rate is a broader measure defined as “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons”.
Exhibit 1 – Employment
GDP growth slowed in 2013 (based on first three quarters) (Exhibit 2). Auto sales, another metric of economic health, increased 6.8% approaching 16 million a year. Inflation, as measured by Consumer Price Index, stayed very benign and decreased for the second year in a row. This combination of slowing growth and mild inflation would argue for continued support from the Federal Reserve.
Exhibit 2 – Growth & Inflation
Public debt increased to $16.7 trillion during the year (Exhibit 3). On the positive side, a combination of tax hikes and spending cuts (sequester) led to a big drop in budget deficit. It declined by 37% to $680 billion to about half of what it was in FY 2011. The Federal Reserve expanded its balance sheet by over a trillion dollars to $3,759,000,000,000 (that’s a lot of zeros!). Average monthly increase was about $90 billion, which is in-line with its official QE pace of $85 billion a month. The purchases have been “tapered” to $75 billion beginning in January 2014. We’ll do a separate post analyzing Fed balance sheet in more details.
Exhibit 3 – Debt & Deficit
S&P 500 earnings growth accelerated to 10.7% (Exhibit 4). However, most of the strong index performance in 2013 came from P/E multiple expansion, which increased by 17% to 17.2x from 14.7x. Both 10-Year Treasury rate and 30-Year Fixed Mortgage rates increased from record-low levels.
Exhibit 4 – Earnings & Rates
Finally, the housing sector continued its slow healing process (Exhibit 5). While still nowhere near prior peaks, both unit numbers and prices improved again in 2013.
Exhibit 5 – Housing
All of these data and MUCH more are available for free at http://research.stlouisfed.org/fred2/. This is a great resource for investors and financial planners who like to do their own homework instead of relying on whatever sensationalized datapoints the media choses to focus on.
I plan on taking a closer look at many of these metrics in future posts.