January Markets in Review
Domestic equity markets retrenched in January after an extraordinary run since the low last March. The S&P 500 Index finished down -3.6% on a total return basis.
The advance (first) estimate of fourth quarter 2009 real GDP growth was a very strong +5.7%. The change in business inventories was largely responsible for the surprisingly strong fourth quarter growth rate, contributing 3.4 percentage points to the 5.7 percent overall growth rate. Solid growth in consumer spending, net exports, and business spending also supported the aggregate results.
We continue to expect solid growth in the first half of 2010, followed by more tepid growth in the second half of the year, as government stimulus effects wane and the economy again will have to rely on internally driven consumer spending. We have not changed our estimates for GDP growth, however the strong fourth quarter results do impact our annual figures as the base has changed. Our 2010 forecast for real GDP growth now stands at +2.9%, close to the long-term average.
Nonfarm payrolls fell -20,000 in January, and this was a healthy improvement from December's downwardly revised loss of -150,000 jobs. Importantly, temporary employment gained +52,000 jobs in January, which was the sixth consecutive month of increases in this important indicator. Conventional wisdom is that temporary employment leads permanent employment by about six months. The unemployment rate fell to 9.7%, as the Bureau of Labor Statistics (BLS) revised its population estimates.
We expect that continued improvement in labor markets should begin to help consumer spending by the second half of the year, although this is likely to be tempered by consumers' new-found propensity to save. For the first half of the year, improved capital spending, as well as continuing, though likely choppy, improvement in business inventories, and the ongoing effects of last year's stimulus measures should support respectable levels of growth. Sit equity funds continue to be positioned with emphasis on the traditional growth sectors of technology and healthcare, along with energy.






