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— Guest post from Peter Essele, senior investment research analyst

Traditionally, to make prognostications concerning the direction of the economy, investors and economists alike tend to look at the total change for nonfarm payrolls on a monthly basis. Commonwealth’s Asset Management team has developed the metric shown here, which is a slightly different way of looking at the same data.

I have spent a couple of days talking about the situation in Washington, and now it’s time to take another look at the country as a whole. Despite the fun and games in D.C., the real economy continues to improve in multiple ways. Let’s take a look at some.

First, employment. Today’s data shows that, overall, 155,000 jobs were added in December, just matching population growth. This is a reasonable number that should keep the unemployment rate stable, and that is what happened. Unemployment stayed steady at 7.8 percent, and the underemployment rate (which I prefer) remained stable at 14.4 percent. Not great news, but given the fiscal cliff uncertainty, not terrible either.

A year that investors can celebrate

I have always loved Christmas. But as I grew older, as much as I loved it, I think I lost much of the spirit. Now that I have a four-year-old son—who is wrestling with the stress of being good under the eye of the “Elf on the Shelf,” eying presents under the tree, and baking cookies with his mom—I find myself recovering much of what I had lost. This is wonderful, but, as a father, I also find myself reaching deeper into the meaning of the holiday.

The idea of sacrifice is at the heart of both Judaism and Christianity, and the notion of a father sacrificing his son is fundamental. Christmas itself, where the Christ child is born into the world, is the start of just that sacrifice. I literally cannot fathom making that kind of sacrifice—of giving up my son. At the same time, I understand just how much I would sacrifice for him.

Fixed income

In a previous guest post, Peter Essele pointed out that, on an income basis, housing appears very affordable and that the aggregate price index has tracked quite closely with the sold/for sale ratio. The correlation between the two is quite high, at 0.93, suggesting that they are causally linked, which is certainly reasonable from a fundamental supply/demand standpoint. Peter went on to conclude that these metrics support the continued strong performance of the housing market, although, as more supply has come on the market, the ratio has become less favorable.

To try to estimate where the real economy will be in 2013, we must first consider where growth might come from. Consumer spending is approximately 70 percent of the economy, so this will be the first area we consider.

— Guest post from Peter Essele, senior investment research analyst

One area of the economy that has been making a strong comeback as of late is the housing market. During the depths of the recession, housing was among the most undervalued areas of the investable spectrum, as affordability reached multidecade highs. Countless valuation metrics, including price-to-rent and price-to-median income ratios, moved well beyond the averages witnessed over previous decades. The mindset of investors toward housing went from viewing it as an asset class that never depreciates to believing that it would never recover—all in a matter of years.

Just a quick note regarding some of the more interesting things I have read recently.