The US markets were up last week as the S&P 500, NASDAQ and Dow Jones are closing in on their all-time highs.
Since Congress was not able to agree on a compromise to the sequester last week, $85 billion in automatic spending cuts will go into effect. The Congressional Budget Office has estimated that sequesters will cause a 0.6% reduction in economic growth for 2013. This reality came as no surprise to Wall Street as the markets showed almost no sign of worry heading into the weekend. Furthermore, since the automatic spending cuts will take months to implement, some economists believe this gave Congress more time to debate the issue and come up with a better solution later this year. The good news is that we have finally cut our spending (although not in a manner most Americans were hoping for). The bad news is that the $85 billion in cuts only represents 2% of the federal budget and is not enough to stop us from growing our national debt.
Q4 2012 GDP figures were revised up last week to +0.1% from its initial estimated 0.1% contraction. This was an expected outcome after analysts were surprised to see the drop in the first place. The upward revision was largely due to business investments and net trade data.
The ISM Manufacturing Index rose to its best level since June 2011, coming in at 54.2. Anything above a reading of 50 indicates expansion while any reading below 50 signals contraction.
Home prices surged in December 2012 which sent the Case-Shiller 20 city index up 6.8%. On a seasonally adjusted basis none of the 20 cities saw a decline in December. Furthermore, the sale of new single-family homes increased 15.6% in January with sales up 28.9% from 1 year ago.
In other economic news, gold prices have continued their decline over the past few months dropping under $1,600 per ounce last week. Oil continues to trade near $90 per barrel but prices at the pump have surged due to a contraction in supply. Rising gas prices is a particularly painful “tax” to US consumers since it represents a significant chunk of many households non-discretionary spending each month.
