The US Confidence Board has announced that its Index rose to 73.7 in November from 73.1 in October. Both are the best readings since February 2008 the year in which Lehman Bros. collapsed triggering, in some people’s opinion, the global recession. The index fell to an all-time low of 25.3 in February 2009.
The surge in American optimism is partly based on the improvement in the jobs market. 171,000 new jobs were created in October. This followed a re-stating upwards of the figures given initially for August and September.
This particular Index, and its underlying survey, is given particular weighting because consumer spending drives nearly 70% of US economic activity. There is, however, still some way to go because experience suggests that a figure of 90% is truly reflective of a sound economic position. That level was last reached in December 2007.
The publishing of the data followed a report from the Washington based Commerce Department, two days earlier, that in October US companies had increased purchases of machinery and equipment by the largest amount for the previous six months. Orders for capital goods (thought to be a proxy for business investment) rose by 1.7% in October the best figure since there had been a rise of 2.3% in May 2012. This followed a slowing down in the first four months of the year. The main areas of growth were in machinery, primary metals and communications equipment.
Commentators believe that this data and the re-election of President Obama will signal a bull market in US equities in the early months of 2013.
Although the old adage suggests that “if the US coughs, the UK sneezes” the Chancellor’s Autumn Statement is unlikely to contain any measures to suggest that UK share prices will follow upwards despite the recent encouraging strong performance of the FTSE 100 index. Financial markets remain subdued with low levels of new issues. The London AIM is particularly quiet with little support for UK companies.
There is increasing concern about the problem of inflation damaging the fragile recovery in 2013. Rising energy and food prices are causing the Bank of England to re-assess its earlier forecasts, based on the falling cost of oil, that the Consumer Price Index might fall back to nearer its 2% target. A possible 3% – 3.5% is now a possibility.
Those who want to believe in a UK stock market surge in 2013 are entitled to look at the US Confidence Index and reflect on the fact that UK unemployment is not at the levels which might have been expected. The Euro zone problems are being sorted out and Greece is still there. Take your pick: bull and bears – six all!