Tapering Signals Year-End Economic Strength Indicators Point to Greater Recovery for 2014

Tapering Signals Year-End Economic Strength
Indicators Point to Greater Recovery for 2014

Tapering Signals Year-End Economic Strength -  Indicators Point to Greater Recovery for 2014

The big "will-they or won't they" ended last month with the Fed's mid-December announcement that it would begin tapering its economic stimulus efforts. Federal Reserve Chairman Ben Bernanke's decision to scale back on Bond and Treasury purchases by $10 billion signaled that the economy has showed sufficient ability to play on its own, albeit, on a kid leash.

The Fed's ambivalence towards tapering dominated central banking discussions and created market volatility for most of 2013. Janet Yellen, the Fed's current vice chairman and President Barack Obama's nominee to succeed Bernanke, voted in favor of the policy action, which was bolstered by promising figures in the labor and housing markets.

The Year in Housing
Housing gained traction in 2013 amid job gains and rising stock values. Residential construction starts soared in November to a five-year high, explaining why builder optimism last month matched its highest level since 2005.

Despite robust new construction, sales of previously-owned homes declined for the third consecutive month in November to the lowest level this year, as rising home loan rates and a limited supply of existing properties discouraged homebuyers. Rates could rise even further with Fed tapering.

Purchases overall dropped 4.3 percent to a 4.9 million annual rate, in a mid-December report from the National Association of Realtors. The report also showed that the median price of an existing home rose 9.4 percent to $196,300 from $179,400 one year ago. The group still projects 2013 will be the best year for the industry in seven years, with an estimated 5.1 million properties sold. Rising prices and borrowing costs may have put homes out of reach for many first-time buyers and the partial federal government shutdown in October may have delayed some purchase decisions.

The Year in Jobs
A five-year low in unemployment and a boost in job hirings helped prompt Fed tapering. In what was largely typical year-end activity, applications for U.S. unemployment benefits rose in early December to an almost nine-month high, according to the Labor Department. Gains in payrolls on the other hand lifted consumer confidence and prospects for retailers during the holidays. The U.S. Automotive industry is also hiring, with sales at their best pace since 2007, according to data from Ward Automotive Group.