However, most of the development came from part-time workers. Corporations remain hesitant to hire the full-time employee as they wait for the presidential election results to see what policies will be put in place.
There are two bright spots that point to an improving economy. Firstly, auto sales for the month hit 14.9 million (on an annualised basis), which is one of the highest numbers we’ve seen this year. This is promising because when someone gets a job, they, for instance, tend to go out and buy a car because they need to get to work.
Secondly, the housing market is showing signs that it’s off life support. Housing permits and existing home sales are increasing, leading to a rise in the average home price. On a year-on-year basis, housing prices are up in the 5% to 10% range. However, distressed areas like Southern California, Arizona, Phoenix and Florida have seen prices fall and as such affordability has improved.
Furthermore there are now 11 million renters that can afford to buy a newly-built house with a FICO score (creditworthiness of a person measured from 350-850) of 750 or better. As soon as a couple of the key regulations from Dodd-Frank are clarified, it’s likely that the amount of money that will be available to lend into the housing market will improve dramatically. This has already happened in the auto market.
From an investment point of view, even though there are promising signs there is still considerable debate within our team about where the opportunities are.
The US is only one piece of the global macro puzzle. The issues that remain and with which we are concerned include:
- the structural issues in Europe (we believe that a pan-European banking regulatory agency is a necessity);
- a slowing China;
- the US budget deficit and fiscal cliff;
- the transition to new leadership in governments around the world which creates uncertainty.
Much of the global economic data was weaker during the quarter and it appears the slowdown has become more deeply entrenched. That is why we have backed off the global growth theme and are invested with a more defensive skew and have shifted towards a more US-centric focus in terms of company revenues.
As such we are a little more defensively positioned, moving into healthcare and reducing exposure to international markets, commodities and industrials.
