September 30, 2013
Weekly Advisor Analysis
September 30, 2013
Investors Pause as Government Shutdown Looms
Once again, the United States government has the investing public on its toes. As we approach the conclusion of 2013’s third quarter, in which stocks have notched solid gains as evidenced by the S&P 500 increasing 5.32 percent, the U.S. is facing its first government shutdown since 1995. Also this week, several other reports updating the status of the U.S. consumer confirmed the same hesitant activity and worrisome outlook the Federal Reserve described two weeks ago in their decision to maintain its $85 billion monthly asset purchasing program.
Congressional Cliffhanger Threatens Shutdown
The 2013 fiscal year in Washington ends Monday, September 30th at midnight, and, unless the House of Representatives and the Senate reach an agreement on a bill that would, once again, temporarily raise the U.S. debt ceiling, the U.S. government could shut down for the first time since 1995. While certainly severe, and estimated by Moody’s to potentially reduce fourth quarter U.S. economic growth by 1.4 percent, this wouldn’t be the first government shutdown we’ve faced. In fact, since 1976 there have been 17 shutdowns with the last one lasting 21 days from December 15, 1995 until January 6, 1996, according to USA Today. As the chart depicts below, the last time we had a government shutdown, it negatively impacted economic growth. Furthermore, given the current fragile state of the U.S. economy, disruption caused by a government shutdown this time around has the potential to be even more damaging than the previous incident.
Consumer Spending Sputters
Earlier this year, consumer spending began to show signs of renewed vigor that even had the Federal Reserve considering a reduction in monetary stimulus. However, the most recent data continues to show that U.S. spending is growing only at a moderate pace. According to a report from the Commerce Department last week, household purchases advanced 0.3 percent in August. While it was encouraging to see a bounce from some of the much lower gains seen in the second quarter of this year, there appears to be a lack of momentum that may indicate a significant future acceleration in spending, according to Bloomberg.
Consumer Sentiment Reaches Multi-Month Low
In conjunction with the moderate gains in consumer spending reported by the Commerce Department, the University of Michigan consumer-confidence index also showed Americans became less optimistic in regards to their level of future spending last month. The Thomson Reuters/University of Michigan index of consumer sentiment declined to 77.8 in early September, down from 82.1 in August and was the lowest level since April. Also, the Conference Board’s reading of consumer confidence plunged to a two-year low of 86.6 in September, as depicted below, marking the largest monthly decline since October 1990. Furthermore, holiday sales forecasts are beginning to be released and early estimates are predicting the weakest growth in holiday season spending since 2009. U.S. spending monitoring firm ShopperTrak is forecasting sales at U.S. stores will increase only 2.4 percent this November and December, compared to 3 percent growth last year, 4 percent growth in 2011, and a 3.8 percent advance in 2010. In other words, right now seems to be a pretty poor time for a government shutdown.
Suzanne H. Christian, CFP®
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Suzanne Christian is a Registered Representative with and Securities offered through LPL Financial, member FINRA/SIPC.
- This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
- The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy.
- Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
- The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
- Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Past performance does not guarantee future results.
- You cannot invest directly in an index.
- CNBC- Stocks snap 3-week win streak as DC worries weigh; JCP drops 13%
- Yahoo Finance (Chart)
- Bloomberg- Shutdown would shave U.S. growth as much as 1.4 pctg. Points in Q4
- McClatchy DC
- USA Today
- For Effective Government (Chart)
- CNBC- US consumers boost spending 0.3 percent in August
- Bloomberg- Consumer spending in U.S. climbs 0.3% as incomes pick up
- Market Watch- Consumer Spending (Chart)
- Market Watch- retail experts foresee weakest holiday sales since 2009
- Big Picture- Sinking Feeling (Chart)