Perspectives from Above the Noise – Week of January 13, 2014

3 Stories in the global economy that should not go un-noticed

Last week began with several pieces of economic data pointing to signs of solid improvement. First came news that that the United States trade deficit had fallen to its lowest level in four years as strong domestic production reduced demand for energy imports. On Wednesday, payroll processor ADP reported that the private sector had added 238,000 jobs, topping the 200,000 forecast. This was the largest monthly increase in the ADP report since November 2012, however, Friday’s December nonfarm payrolls report reframed the unemployment numbers as the U.S. economy added only 74,000 jobs.

For the week, the S&P 500 gained 0.6%, the Dow fell 0.2%, and the MSCI EAFE (developed international) gained 0.63%.

Here are the 3 stories this week that rose above the noise:

Services in U.S. Expand at Slower Pace than Forecast

U.S. service activity fell to its lowest rate of growth in six months during December. The ISM Non-Manufacturing Index dropped to 53.0 from 53.9 in November (above 50 signals expansion). However, the decline in growth was likely weather-related and service activity continues to expand at a healthy pace. Solid gains occurred in construction and retail, while hotels and restaurants experienced a slowdown. European service activity also expanded in December, albeit at a slower pace than in the United States and below the level of growth that occurred in November.

Trade Gap Shrinks to Four-Year Low as U.S. Oil Imports Drop

The trade deficit in the United States declined 12.9 percent to $34.3 billion in November, smaller than the $40 billion Bloomberg consensus and represented the lowest monthly gap since October 2009. Exports increased 0.9 percent to $194.9 billion, reflecting significant gains in civilian aircraft and chemical sales which are being driven by improving economies in Europe and Asia.

Imports dropped 1.4 percent to $229.1 billion in November, as purchases of crude oil dropped to the lowest level in three years, reflecting both lower prices and volume. The figures used to calculate gross domestic product, which eliminate the influence of prices, showed the trade deficit narrowed to $44.6 billion in November, a five-month low. The fourth-quarter average so far is smaller than in the previous three months, indicating trade boosted gross domestic product.

Disruptive Technologies: Advances that Will Transform Life, Business, and the Global Economy

The relentless parade of new technologies is unfolding on many fronts. Almost every advance is billed as a breakthrough, and the list of “next big things” grows ever longer. Not every emerging technology will alter the business or social landscape, but some truly do have the potential to disrupt the status quo, alter the way people live and work, and rearrange value pools. This article from the McKinsey Global Institute cuts through the noise and identifies 12 technologies that could drive truly massive economic transformations and disruptions in the coming years.

3 examples include: 1) Advanced robotics—that is, increasingly capable robots or robotic tools, with enhanced “senses,” dexterity, and intelligence. 2) Next-generation genomics marries the science used for imaging nucleotide base pairs (the units that make up DNA) with rapidly advancing computational and analytic capabilities. As our understanding of the genomic makeup of humans increases, so does the ability to manipulate genes and improve health diagnostics and treatments. 3) And Energy-storage devices or physical systems store energy for later use. These technologies, such as lithium-ion batteries and fuel cells, already power electric and hybrid vehicles, along with billions of portable consumer electronics.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.