After the close yesterday, the Wall Street Journal got its hands on the administration's first offer sheet in the Fiscal Cliff discussions. It really is amazing how quickly people are saying that both sides are interested in compromising. Some republicans are backtracking on new taxes, while democrats are trying to have their cake and eat it too. Starting new taxes now, but not cutting entitlement spending until five to ten years down the road is not acceptable. We seemed to be heading towards some sort of resolution, but now both sides are digging in. Just what the nation needs, a World War I like trench war with the health of the nation at stake. I really don't like all the grandstanding on TV, with both sides trying to save face. I wonder if politicians understand they will get the credit for helping to save the economy. Does anyone actually believe there is going to be a deal before the last minute?
Besides the Fiscal Cliff, economic data was actually released today (I know, who thought that economic data would move the market), with Personal Income remaining unchanged (more about this later in the report), while retail sales in Germany unexpectedly fell 2.8% during October while economists were expects a 0.4% drop. Additionally, Germany approved the latest payment to Greece. So it is not the Fiscal Cliff, but what is happening around the world that is driving stocks today. That being said, if some positive news comes out from Washington, watch out, this market could take off.
Special dividends continue to be the new trend, as companies are releasing the tons of cash on balance and giving it back to shareholders. It is a nice gesture ahead of the higher taxes on dividends and other capital gains. Here are just a few of the companies that have announced a special dividend, and the size of it.
Consumers are extra cautious this holiday season, when of course they don't have to be, because Congress is holding them back. Well, it turns out they have a reason to be cautious because in October, personal incomes were flat according to the BEA. That's the first time there's been no income growth since last November. And get this, employee compensation was down 0.2%. If you're wondering how income was flat, it was helped by capital gains including a 0.6% dividend income increase. So it would be fitting then that the government would want to siphon from it come January, wouldn't it.
Likewise, personal spending was down 0.2% for the month. That's just the third time spending has gone negative since 2009. That coincided with a slight uptick in the savings rate, to 3.4% which is natural when your wages are going down and your taxes threaten to go up.
Chicago's regional manufacturing survey came in with a slight gain to 50.4 from 49.9, which was slightly more than the 50.3 consensus. The positives of the report include an increase in production to 54.7 from 51.8 and an increase in employment to 55.2 from 50.3. That's all fine and dandy but there were a couple of major red flags in this report.
First off, remember that 50.0 is the dividing line between contraction and expansion so the 50.4 headline means it essentially stood still. But even more worrying, check out new orders which plunged to 45.3 from 50.6, and were at the lowest point since all the way back in June 2009. It's a wonder that the headline increased at all considering that point alone. That being said, it could have been partially related to Hurricane Sandy, although the Fiscal Cliff couldn't have helped either. And then there was an odd increase in prices paid, to 70.1 from 59.3.