Market Commentary

December 20, 2011

Housing, the consumer, and the manufacturing sectors will likely dominate the economic landscape this week in the United States, as the U.S. government's economic data mills make one final push ahead of the traditional lull in the economic calendar the week between Christmas and New Year's Day. Of course, the U.S. economic data has taken a back seat to other events in recent weeks, and this week is not likely to be an exception. The debt dilemma in Europe, the final wrangling in Congress over the extension of the payroll tax cut and unemployment benefits, along with the fallout from the death of North Korean leader Kim Jong Il might once again force financial market participants' focus elsewhere.

The state and local government sector is likely to continue exerting downward pressure on U.S. economic growth in 2012, even after restraining growth in gross domestic product (GDP) in all but three of the 15 quarters since the beginning of 2008.

The Week's Economic Reports Likely to Take a Back Seat to Washington, Europe and Korea

Even as consumers rush to make their final purchases of the 2011 holiday shopping season - Hanukkah begins on December 20 and ends on December 28, and of course Christmas is December 25 - the government's data mills are making one last push to get all of the economic data out the door. This week's dataset in the United States is dominated by housing, manufacturing and the consumer. The housing data due this week includes a mix of reports on sales, prices, starts, permits and sentiment for both November and December 2011. In general, the housing reports due this week are likely to show that the modest recovery in the housing market that began nationally in early 2009 continued through the end of 2011. As noted in last week's Weekly Economic Commentary, "Communications Breakdown?" we expect housing to continue to heal further in 2012, but that the sector still has a long way to go before it can become a reliable contributor to overall economic growth again.

Manufacturing is another focus of this week's data in the United States. In recent months, domestic manufacturing activity has bucked the global trend of deceleration, and has reaccelerated a bit. Part of the reacceleration has come as the global supply chain returned to normal after the Japanese earthquake and tsunami. For example, auto and light truck production in the United States in the latest week (ending December 16) was the strongest since early 2008.

Finally, the consumer will be in the spotlight this week as well with the regular weekly reading on retail sales due out on Tuesday, December 20, the University of Michigan's consumer sentiment index for December on Thursday, December 22, and the November personal income and spending data on Friday, December 23. Consumer spending, which accounts for two-thirds of the overall economy, has been buoyed in recent weeks by a sharp drop in gasoline and other consumer energy prices, better news on the labor market and more stability in the housing market. Last week (December 12 - 16), the National Retail Federation (NRF) - a trade group of the nation's retailers - raised its 2011 holiday sales forecast by a full percentage point. The group, which forecast a modest 2.8% year-over-year gain in holiday shopping in 2011 back in early October 2011, now says holiday shopping is likely to rise by 3.8% - above the long-term average gain in holiday sales of 2.6%, but below the robust 5.2% sales gain seen during the 2010 holiday shopping season.

In the past, the National Retail Federation has been very conservative in its holiday sales forecasts. Thus, the guidance provided by the NRF last week, along with the return of cold weather to much of the nation in mid-December, and the solid gain in the equity market since September, all suggest that sales are likely to come in at around 4 to 5% when all the receipts are counted. Retailers will report their December sales on Thursday, January 5.

and local governments have shed nearly 4% of their workers, or more than 610,000 jobs. If anything, that figure probably understates the impact to the overall economy, because it does not take into account that many older state and local government employees are retiring early, and being replaced by lower paid workers, who often are not receiving the same level of benefits.

Looking ahead, the decline in state and local government workers is likely to persist into 2012, though likely at a more modest pace than over the past three and a half years. As the economy has stabilized in 2010 and 2011, so too have state and local government revenues. However, the Great Recession did little to relieve state and local governments of their obligations to meet mounting post-retirement benefits like healthcare and pension costs for current and former employees. When continued pressure on federal aid to state and local governments is factored in it leaves state and local governments with very little wiggle room to hire any additional workers or make any major commitments to spend on social programs, education or infrastructure projects. Thus, one of the few avenues left for state and local governments to continue to align short and long term costs with revenues is to continue to pare workers and cut back on expansion of existing programs. The net result is likely to be another year in which the state and local government sector provides little support for the overall economy.

Source: LPL Financial Reserarch. Weekly Economic Commentary. Tracking #1-031423. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. International investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.

Subscribe to get weekly news from Claycomb Wealth Management

About Claycomb Wealth Management

Financial Advisor and Investment Manager

What's important to you? For Shawn Claycomb the answer is very clear ... it's about enjoying life and all that it has to offer.

Financial independence goes a long way in helping you truly relax and take pleasure in the lifestyle you hold dear. But it can be difficult to successfully navigate the complex waters of financial planning, retirement planning, investment management, and estate planning by yourself. Having a financial advisor and investment manager you trust can be the key to your financial independence and future.

Independent Financial Advisor and Wealth Management Advice

There has never been a more important time to sit down and have a review with an experienced financial advisor. As an independent CERTIFIED FINANCIAL PLANNER^TM professional, Shawn has the freedom to offer non-biased financial advice and wealth management strategies that work best for each of his clients.

Managing wealth successfully so that you can enjoy life requires a broad range of financial, tax, retirement and estate planning solutions. The type of knowledge only an experienced financial advisor would have. Shawn Claycomb, CFP® and financial advisor, takes great pride in helping his clients plan, accumulate, and preserve their wealth to build a solid foundation and roadmap for their financial future, including retirement and transferring assets to future generations. He understands the more wealth you accumulate, the more options, obstacles and challenges you face.

A Certified Financial Planner with the Experience you Need & Integrity you Want

As a CERTIFIED FINANCIAL PLANNER^TM professional with an MBA in Finance and more than 25 years of financial advisor and investment management experience, families throughout Northern California have come to rely on Shawn's comprehensive wealth management knowledge, integrity and attention to detail in helping them plan the financial future.

But perhaps most important of all, the CERTIFIED FINANCIAL PLANNER^TM designation means that Shawn has made a professional commitment to always act in your best interest, as one of his financial planning clients. Not only will you have a clear plan for your financial well-being but you will have peace of mind knowing that it's based on your personal financial situation and goals.

Financial Advisor Services for People Across Northern California

Located in Folsom, CA, we provide financial planning and advisor services to individuals and families across the Sacramento Valley and Bay area, including the communities of Sacramento, Folsom, Granite Bay, El Dorado Hills, Cameron Park, Shingle Springs, Placerville, Rancho Murieta, Gold River, Fair Oaks, Orangevale, Carmichael, Citrus Heights, Roseville, Rocklin, Meadow Vista, Lincoln, Loomis, Auburn, San Francisco, San Jose, Campbell, Cupertino, Santa Clara, Sunnyvale, Mountain View, Stanford, Palo Alto, Los Altos Hills, Menlo Park, and San Carlos.

To learn more about our Financial Advisor and Independent Management Services, and to visit our Folsom office, contact Claycomb Wealth Management today at (800) 450-1029.

Folsom Financial Advisor | Sacramento Certified Financial Planner | Granite Bay Wealth Management | Roseville Investment Manager

Member of
Financial Planning
Association of
Northern California