Stocks climb on House vote, good economic news
It's Christmas/Hanukkah miracle: Economic reports showed marginal improvement and the House approved a two-month extension of the payroll tax cut and benefits for the long-term unemployed. And Europe hasn't blown up today. As a result, the S&P 500 is back in the black for the year, closing at 1265. (The index closed at 1257.64 on December 31, 2010.)
Personal Income and Spending increased by a smaller-than-expected 0.1 percent in November, and the personal saving rate dipped to 3.5 percent from 3.6 percent. The report underscores the tenuous situation for Americans: the pace of income growth has not yet fully recovered from the summer slump and therefore the slow increase in spending is occurring at the expense of saving.
Durable goods orders (manufacturers' orders for goods designed to last at least three years,) increased by 3.8 percent ($7.5 billion) in November, far better than forecasts for a 2.2 percent rise. A whopping 73 percent climb in nondefense aircraft propelled the top line number. Excluding transportation, orders increased only 0.3 percent, slightly less than expected. Clearly manufacturers are unwilling to place large orders in an uncertain economy. It's another example of the circular nature of our economic problems: Companies won't hire until demand picks up, but it's tough for demand to increase when people don't have jobs.
New Home Sales in November rose 1.6 percent to a seasonally adjusted annual rate of 315,000, up from an upwardly-revised 310,000 in October and up 9.8 percent from a year ago. The months of supply decreased to 6.0 in November, which is close to the long-term average and represents significant progress from the all time record of 12.1 months of supply in January 2009. Still, new home sales have averaged only 300,000 over the 19 months since the expiration of the tax credit. The market has moved sideways to slightly higher from a very low level.
What's the take-away from this holiday data dump? The economy is improving at a slow pace, which is why the House decision to extend the payroll tax cut and benefits to the long-term unemployed, even for just two months, is an essential component to economic growth for 2012. Without a compromise for the full-year on these short-term simulative measures, the U.S. economy could see growth in 2012 slashed to just over one percent, a level not nearly strong enough to lower unemployment, propel wages or help housing.
Congress OKs payroll tax cut extension
Economist: Failure to extend tax cut will slow recovery
Weekly claims and GDP: Why Congress must act
In the quiet, pre-holiday session on Wall Street, traders were relieved by news of the extension the payroll tax holiday. Stocks have gained steadily for the past three days on hopeful signs about the pace of economic growth in the fourth quarter, which ends next week. In other positive economic news, new claims for unemployment benefits fell last week to the lowest level since April 2008, long before anyone realized the nation was in a recession.
