Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy.
Let’s work together to help you sift through the barrage of economic data out there and determine what this will mean for your stocks.
Here’s what you need to know about the latest headlines:
Durable Goods Orders
What It Measures: Orders are a leading indicator of manufacturing activity. So, every month the Census Bureau and the Department of Commerce measure the dollar volume of orders, shipments and unfilled orders of durable goods. Durable goods are those that last at least three years. This report is different from the Factory Orders report, which covers both durable and non-durable goods.
The Breakdown: Orders for durable goods slipped 3.4% in December, which marked the fourth decline in the past five months and the worst performance since August. Economists were expecting durable goods orders to increase 0.3% last month. The main culprit for the unexpected dip was a 55.5% plunge in commercial aircraft orders.
The Bottom Line: To be sure, this was a disappointing report, and has some questioning if the U.S. economy can maintain 3% GDP growth in the fourth quarter of 2014. But what we need to remember is that durable goods orders are often volatile. The government tends to revise these estimates as more information and data becomes available. Plus, durable goods orders for all of 2014 increased 6.2% over 2013—which is a positive improvement for the U.S. economy.
Consumer Confidence Report
What It Measures: What this report measures is somewhat self-explanatory. Every month, the Conference Board surveys 5,000 households to figure out consumers’ take on current conditions as well as their expectations for the future. The expectations index makes up 60% of the total measurement because it is a better leading indicator than the current conditions index, which makes up the remaining 40%. This survey helps forecast sudden shifts in consumption patterns, but only changes of at least five points should be considered significant.
The Breakdown: In January, the Conference Board’s index of consumer confidence increased to 102.9, up from a revised 93.1 in December. This beat economists’ expectations for the index to rise to 95.1.
The Bottom Line: U.S. consumer confidence is now at its highest level since August 2007, and that bodes well for continued strength in consumer spending.
New Home Sales
What It Measures: This report, released by the Commerce Department, shows how many new privately owned single-family houses were sold and for sale for in the past month. The report also calculates median home price, which is an indicator of inflation in the housing sector. Personally, I prefer the existing homes sales report because its data pool is four times larger, but this is still an important gauge of the housing market’s health.
The Breakdown: In December, new home sales surged 11.6% to a seasonally adjusted annual rate of 481,000. That was well above economists’ forecast for sales to reach a 450,000 pace. In addition, sales for October and November were revised higher.
The Bottom Line: New home sales are now at their highest level since June 2008. Lower mortgage rates and an improving job market are adding to the renewed strength in the housing market.
Initial Claims for Unemployment
What It Measures: It is an indicator of the direction of the job market. Increases in jobless claims show slowing job growth; decreases in claims signal accelerating job growth. On a week-to-week basis, jobless claims are volatile, so one of the best ways to track this measure is to look at the four-week moving average. It usually takes a jump or decline of at least 30K claims to signal a meaningful change in job growth.
The Breakdown: For the week ended January 24, initial claims for unemployment dipped by 43,000 to a seasonally adjusted rate of 265,000. Economists were only expecting claims to fall to a 300,000 pace. The four-week moving average has now fallen back below 300,000 to 298,500.
The Bottom Line: With the recent dip, unemployment claims are at their lowest level in about 15 years, which is a positive sign that the U.S. labor market continues to improve.
Fourth-Quarter GDP (Advanced Estimate)
What It Measures: Gross Domestic Product shows the big picture. Annualized quarterly percent changes in GDP reflect the growth rate of total economic output. Of course, this report can move the market up or down, depending on the data. The broad components of GDP are: consumer spending (consumption), investment, net exports, government purchases and inventories. Consumer spending is by far the largest component, totaling roughly two-thirds of GDP. 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. If you only have time to focus on one economic report, this is it.
The Breakdown: The Commerce Department reported this morning that U.S. GDP growth grew at a 2.6% annual rate in the fourth quarter, after expanding 5% in the third quarter and 4.6% in the second quarter. This was lower than economists’ expectations for 3.2% growth.
The Bottom Line: In 2014, U.S. GDP growth averaged a 2.4% pace, which is slightly above the 2.2% growth between 2010 and 2013. The U.S. consumer remains the primary driver of economic growth in the U.S., and consumer spending was 4.3% in the fourth quarter, which bodes well that the U.S. economy will maintain its moderate growth rate.
University of Michigan’s Consumer Sentiment Index (Final)
What It Measures: The University of Michigan index is almost identical to the Conference Board index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindices—expectations and current conditions. This index has increased its influence of late on Wall Street and has the ability to move the market up or down. Consumer confidence is hard to nail down, so it is important to keep track of both reports.
The Breakdown: The Thomson Reuters/University of Michigan Consumer Sentiment Index’s final January reading was 98.1, up from 93.6 in December. This is slightly under economists’ expectations for a reading of 98.2, but the best reading since January 2004.
The Bottom Line: The U.S. consumer is definitely more optimistic, thanks to a better job market and low energy prices. As such, we’ll likely see continued strength in consumer spending and GDP growth continuing its moderate pace.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
