Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy.
Let me help you sift through the barrage of economic data out there and determine what this will mean for your stocks.
Personal Income
What It Measures: Personal income measures income, most importantly wages and salaries, from all sources. The report also factors in other sources of income like rental payments, government subsidy payments, interest income and dividend income. This helps to predict future consumer demand, which of course comprises about two-thirds of economic activity.
The Breakdown: In December, personal income grew at a 0.3% annual pace, slightly above economists’ expectations of a 0.2% increase. Meanwhile, personal spending dropped 0.3%, while economists’ expected a 0.2% decline. This is the biggest decline since 2009; after adjusting for inflation, consumer spending declined 0.1%.
The Bottom Line: While personal spending dipped more than expected in December, consumer spending for full-year 2014 rose 2.5%, which is the biggest annual increase since 2006.
Construction Spending
What It Measures: This Commerce Department report details residential, non-residential and public expenditures on new construction for the past month. Although monthly changes are volatile and subject to huge revisions, trends extending over three months can impact the broader markets. In addition to providing insight on the construction market, the spending figures are used by economists to forecast the investment component of quarterly Gross Domestic Product.
The Breakdown: During December, construction spending increased less than expected, rising 0.4% to an annual rate of $982.1 billion. Economists were expecting a 0.7% increase in December. November’s construction spending was revised up to show a 0.2% drop, compared to the previously reported 0.3% slip. Private construction spending increased 0.1%, while public construction spending rose 1.1%. Total construction spending for 2014 rose 5.6%.
The Bottom Line: Despite missing economists’ estimates, construction spending was at its highest level since 2008.
Factory Goods Orders
What It Measures: Covering both durable and nondurable goods, this Commerce Department report offers a more comprehensive snapshot of manufacturing than the earlier durable goods report. Nondurables consist of items like food and tobacco products; these products grow at a fairly consistent monthly rate, so the market forecasts are also more accurate than the durable orders report. This report also covers factory inventories and serves as an initial measure of inventory (to be followed shortly by the larger wholesale inventories report). Though the inventory figure is not a market-mover, economists use this number to help forecast inventories in the quarterly Gross Domestic Product report.
The Breakdown: The Commerce Department reported that new orders for factory goods slipped 3.4% to $471.5 billion in December. This followed November’s 1.7% decline, and was steeper than economists’ expectations for a 2.2% decrease.
The Bottom Line: This is the fifth-straight month that factory good orders declined, after posting a record high in July. However, there were some positives, as non-defense capital goods shipments were revised up to a 0.2% increase, instead of a 0.2% decline.
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 ending January 31, initial claims for unemployment increased by 11,000 to a seasonally adjusted 278,000. Economists were looking for claims to total 290,000. The four-week moving average dropped to 292,750.
The Bottom Line: With claims still below the 300,000 mark, it shows that labor market is still improving.
Balance of Trade Report
What It Measures: The Commerce Department’s trade report is most widely watched for the latest overall trade balance. By extension, the report measures export and import levels; exports demonstrate how competitive U.S. goods and services are as well as the strength of economies overseas. Imports indicate domestic demand. The volatility in the monthly trade balance, especially on the exports side, plays an important role in Gross Domestic Product (GDP) forecasts.
The Breakdown: The U.S. Trade deficit widened by 17% to $46.6 billion in December. This surpassed economists forecast of $38 billion and is the widest level since 2012. Exports slipped 0.8% to $194.9 billion, while imports rose 2.2% to $241.4 billion.
The Bottom Line: The U.S. trade deficit is now at its highest level in two years and will continue to adversely impact GDP calculations.
Unemployment Rate Report
What It Measures: This Labor Department announcement consists of two separate reports. First, about 60,000 households are surveyed to determine the unemployment rate. Then, approximately 375,000 businesses are surveyed to determine the number of nonfarm payrolls, average workweek and average hourly earnings figure. Together, these surveys make up the timeliest and broadest indicator of economic activity released each month.
The Breakdown: The Labor Department reported this morning that nonfarm payrolls climbed by 257,000 in January. This beat analysts’ estimates for a 230,000 increase. Payrolls for November and December were also revised higher by 70,000 and 77,000 more jobs, respectively. The unemployment rate increased to 5.7%, while wages rose 0.5% in January, the biggest increase in six years.
The Bottom Line: The upward revisions for November and December were particularly bullish, especially November which was the biggest monthly payroll increase since May 2010. Overall, this was a very positive payroll report and may reignite speculation that the Fed may raise key interest rates due to the fact that wages are now finally rising.
Consumer Credit Report
What It Measures: This report is released by the Federal Reserve every month to measure consumer debt for the past month. Consumer credit is broken down into three categories: auto, revolving (credit card) and other debt (student loans, etc.). Periods of strong spending can be accompanied by relatively weak credit growth and vice versa.
The Breakdown: U.S. consumer credit increased by 5.4% to $14.76 billion in December, slightly lower than economists’ expectations for a $15 billion increase. This is the first time since April that credit card loans outpaced non-revolving debt. Revolving credit only rose at 7.9% rate, while non-revolving credit expanded at a 4.5% rate.
The Bottom Line: So despite falling gasoline prices putting more cash in consumers’ pockets, U.S. consumers were still willing to use credit cards more in December than in November. And this trend may continue as the employment market continues to improve and the U.S. consumer grows more confident.
Louis Navellier is the editor of Blue Chip Growth.
