Contrasting several recent data points that provided evidence of slowing domestic growth, the past week included a couple of important economic releases that indicated U.S. economic momentum remained solid in November. Wednesday’s release of the ISM Non-manufacturing Index for November showed an improvement to 59.3, the second-highest level since August 2005 and well ahead of consensus expectations.
Globally, the focus was on the European Central Bank’s (ECB) latest meeting on Thursday, when it substantially lowered its forecasts for both inflation and growth. ECB President Mario Draghi seemed to, at least initially, disappoint investors by failing to commit to additional stimulus measures to offset those drags, explaining in rather vague terms that officials are still evaluating whether the ECB is already doing enough. Needless to say, European equity markets reversed lower and the euro currency rallied sharply in the wake of his comments.
For the week, the S&P 500 rose +0.38%, the Dow Jones Industrial Average added +0.73%, and the MSCI EAFE (developed international) dropped -0.40%. Here are the 3 stories this week that rose above the noise:
Economists See Revved-Up U.S. Economy Next Year
U.S. economic growth is expected to increase from 2.2 percent this year to 3.1 percent in 2015, according to the latest forecast from the National Association for Business Economics (NABE). The economists surveyed also expect the unemployment rate to drop to 5.4 percent, but anticipate that inflation will remain low.
They were not as optimistic about global growth in 2015 and nearly half of the economists surveyed feel that foreign developed economies will experience slower growth for an extended period of time. According to the survey, the economists anticipate that Europe and Japan will experience GDP growth of around 1 percent in 2015.
Dollar Surge Endangers Global Debt Edifice, Warns BIS
As summarized in a recent article, the Bank for International Settlements recently identified a growing risk to global financial stability triggered by the strengthening U.S. dollar. Many companies in emerging markets expanded their issuance of U.S. dollar-denominated debt over the past decade in response to general dollar weakness.
However, as the U.S. dollar rises in value the debt burden of companies in emerging markets which have issued dollar-denominated debt will also rise, potentially straining global credit markets and creating financial market volatility. This is one risk worth watching closely in 2015.
US Manufacturers Still Outpacing Rest of World
U.S. manufacturers barely slowed down in November even as major competitors around the world continued to scale back production. The Institute for Supply Management said its U.S. manufacturing index edged down to 58.7% last month from 59% in October. Yet any number above 50% signals expansion, and the latest reading kept the ISM index near a three-year high. Fourteen of the 18 industries tracked by ISM said business increased in November while the closely watched new orders component hit a three-month high.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
