Looking into upcoming economic data and what it could mean, and what it could bring us into the coming week (s).
Friday 2/24 10am EST
New Home Sales
The report indicates the level of new privately owned one-family houses sold and for sale. New home sales usually have a lagged reaction to changing mortgage rates. They also tend to be stronger early in the business cycle when pent-up demand is strong, and they fade later in the cycle as the demand for housing is sated. In addition to home sales, the market monitors the number of homes for sale relative to the current sales pace. As this inventory measure falls (rises), housing starts tend to rise (fall). Finally, the median home price provides an indication of inflation in the housing sector, though only year/year changes provide any meaningful information.
We’ve had week over week growth on New Home Sales since October, and I don’t see it slowing down anytime soon. Stocks that expect to move on this data:
MCP/HD/LOW/BLDR/WHR
I took a position in MCP after they posted better than expected earnings and CEO Mark Smith stated there is an increase demand in rare earth metals. They have world-wide exposure, and I was able to get in at 28.50 in after hours today. Plan to long through New Home Starts tomorrow. If I can get a position in BLDR tomorrow morning in the premarket for 2.83 or less, I will also take a position, however the probability is low.
Monday 2/28 8:30am EST
Durable Goods Orders/ Transportation
The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.
This will be interesting, as it will allow us to see a small portion of potential GDP growth. I predict to see a move in WHR if they pump it up on CNBC saying that they contributed to XX% of those orders. Cramer on Mad Money likes to pump WHR up a lot and I’d be surprised if he doesn’t talk about it on Monday. We’ll see F and GM move on the Transport #s. I might short F again on good data, seeing oil prices are showing no mercy.
Later on Monday 2/28 @ 10am EST
Consumer Confidence
The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant. The index consists of two subindexes – consumers’ appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Consumer Confidence Tracks the S&P 500 pretty closely and can be a good indicator of where we are headed. A rating of 64.5 or higher would be good for the markets. Less than 61.1 would let us know we’re in a downward trend.
The markets rallied pretty strong over the last month. it will be interesting to see what the report brings. Dependent on the numbers that are released, I’d like to take a position in Macy’s.
Macy’s has strong fundamentals and their marketing strategy has proven to be top notch. Instead of all the stores offering the same products, each store has it’s own products unique to the customers’ demands of that area. Not only is Macy’s focusing on the product demands of the customers, they are beginning to focus more on customer service. They have adapted a few motivational games for the managers to further motivate their staff. Unlike JWN, M does not pay their employees on commission and pays them minimum wage. Like most retailers Macy’s has high turnover in the associate department, however in higher management positions there is less turnover than their competition.
I like their resilience, and ability to adapt to market conditions. However these consumer confidence numbers are something I’m going to want to see before investing in a sector that’s going to be facing a lot of headwind with the disappearing middle class.
2/29 8:30AM
GDP: Gross Domestic Product 2nd Estimate
Gross Domestic Product (GDP) is the the broadest measure of economic activity. Annualized quarterly percent changes in GDP reflect the growth rate of total economic output. The figures can be quite volatile from quarter to quarter. Inventory and net export swings in particular can produce significant volatility in GDP. The final sales figure, which excludes inventories, can sometimes be helpful in identifying underlying growth trends as inventories represent unsold goods, and a large inventory increase will boost GDP but might be indicative of weakness rather than strength. The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totalling roughly 2/3rds of GDP.
In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each component. Though the consumer price index is a more closely watched inflation indicator, the GDP deflator is another key inflation measure. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflator.
With both GDP and the deflator, the market tends to focus on the quarter/quarter change. Year/year changes are also cited frequently, though they do not provide the most timely indications of economic activity or inflation. The bond market often reacts to GDP, though the price moves are typically small, as much of the GDP data is easily predicted using monthly economic releases such as personal consumption, durable goods shipments, construction spending, international trade, and inventories.
Quarterly GDP reports are broken down into three announcements: advance, preliminary, and final. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.
This is just an estimate, however last time we missed the analyst estimates just shortly and stocks still did well.
3/1/2012 8:30am EST
Initial Jobless Claims
Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signaling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.
There are two other statistics in this report — the number of people receiving state benefits and the insured unemployment rate; neither is watched closely by the market. Some analysts track the number of people receiving state benefits from month to month as a guide for job growth, though this series has a poor track record in predicting the monthly employment report.
Last week we didn’t see a decrease in jobless claims, but the dow still hit 13,000. If we have an increase in jobless claims we might see a pull back in the markets a little.
3/1/2012 8:30AM EST
Personal Income and Consumption
Personal income measures income from all sources. The largest component of total income is wages and salaries, a figure which can be estimated using payrolls and earnings data from the employment report. Beyond that, there are many other categories of income, including rental income, government subsidy payments, interest income, and dividend income. Personal income is a decent indicator of future consumer demand, but it is not perfect. Recessions usually occur when consumers stop spending, which then drives down income growth. Looking solely at income growth, one may therefore miss the turning point when consumers stop spending.
The income report also includes a section covering personal consumption expenditures, also known as PCE. PCE is comprised of three categories: durables, nondurables, and services. The retail sales report will provide a good read on durable and nondurable consumption, while service purchases tend to grow at a fairly steady pace, making this a relatively predictable report, and ranking it well below retail sales in terms of market importance.
This is going to be really important, because with gas prices going up, restaurants and retailers are worried that they are going to lose business. This an especially slow time of the year for the restaurant industry as well. If however there is an increase in income and consumption, it’s likely we’ll see retail and services stock jump up.
3/1 2:00pm EST
Auto and Truck Sales
Auto and Truck Sales measure the monthly sales of all domestically produced vehicles. They are considered an important indicator of consumer demand, accounting for roughly 25% of total retail sales. Demand for big ticket items such as autos and trucks tends to be interest rate sensitive, making the motor vehicle sector a leading indicator of business cycles.
Each auto maker reports sales individually. The reports are typically released over the course of the first three business days of the month. Using the individual reports, a total annual sales pace can be calculated after applying Commerce Department seasonal factors. It is this annual sales pace that the market refers to when discussing auto and truck sales for the month.
Auto Sales have had month over month growth since October, however with an increase in oil prices we may not see much price action on stocks like F and GM. I might take a short position on F if good data is released.
