Global CIO Commentary by Scott Minerd
“For the first time in 124 years, U.S. exchanges were closed for two consecutive days due to severe weather. My thoughts are with all of the people who have lost or suffered due to the tragic events that have unfolded in the Northeast so far this week.
This storm is going to wreak havoc on certain economic indicators like retail sales. One question is whether there will be an upward distortion in the data for October because of the sudden urgency to buy defensive materials, or if that will be offset by the lost week of shopping at the end of the month, which traditionally has been an important time of year for retailers. Regardless, there will be a great deal of uncertainty concerning monthly data until this is sorted out.
Another consideration is that the costs for this event are being estimated at upwards of $20 billion. This is versus the $16 billion that Irene cost. As construction efforts get underway, however, the boost in employment and the resultant increase in disposable income could actually act as a stimulus in the coming months. Hurricane Katrina caused a quarter of subpar economic output, but two or three quarters after the event, the economy in the region picked up because of the spending on the recovery. With Sandy, it appears that there will be a downturn in economic activity for two or so weeks, meaning a rebound in spending could come online before the end of the fourth quarter.”
Economic Data Releases
Stronger U.S. Housing and Personal Consumption Are Promising For the Holiday Season
Third quarter GDP showed the U.S. economy expanded faster than in the second quarter at 2.0% on a seasonally adjusted annual rate. The stronger growth was led by increases in personal consumption and government spending. Consumption in the U.S. has been improving with personal spending up 0.8% MoM in September, the largest monthly increase in seven months. Personal income rose 0.4% MoM in September, the fastest pace in six months. The housing market continues to show signs of improvement with the Case Shiller national home price index rising 0.5% in August and new home sales rising to a two year high in September. Meanwhile, October's consumer confidence rose to a five-year high according to the University of Michigan. Durable goods orders rose 9.9% in September, the fastest growth rate since January 2010.
European Economic Growth Continues to Deteriorate, Asian Central Banks Ease Further
The Business Climate Index for the eurozone fell to its lowest level in three years in October. Money supply (M3) for the eurozone rose 2.7% in September, the slowest rate in five months, and the Purchasing Managers Index fell to 45.8 in October, the lowest level since June 2009. Real GDP in Spain declined by 0.3% QoQ for 3Q, the fourth consecutive quarter of decline, while the UK fared better with third quarter real GDP rising 1.0% QoQ, the strongest quarterly growth in four years. In Japan, industrial production fell 4.1% MoM in September, the largest monthly decline since March 2011. Japan's central bank eased further by expanding its asset purchase program in addition to launching an unlimited bank loan stimulus program. India's central bank lowered its cash reserve ratio by 25bps to 4.25%.
Chart of the Week
Top 10 Costliest Hurricanes in the U.S. – Damages Ranked in 2010 Real U.S. Dollars
According to the latest estimates, hurricane Sandy will cause in excess of $20 billion in total economic damage, which includes damage to private and public property and public infrastructure. Given this estimate, Sandy will be the fourth costliest hurricane in U.S. history. The impact of the hurricane on U.S. economic activity will be mixed; business activities will be negatively impacted in the coming days and weeks as the impacted area recovers from the damage, but rebuilding activities such as construction will lead to a boost in the coming quarters.
Source: National Hurricane Center, IHS Global Insight.
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