Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy. I’m here to help you sift through the barrage of economic data out there and determine what this will mean for your stocks.
Despite the upcoming Easter holiday, last week was a busy one for the various public and private organizations that report U.S. economic data.
Overall, the news was mixed last week. In February, consumer spending rose just 0.1%, exports fell 1.6% and the ISM manufacturing index fell for the fifth straight month.
At the same time, layoff activity fell to a nine-week low, factory goods orders posted their highest gain since July and the Conference Board’s March consumer confidence index beat expectations.
So, given the mixed economic reports last week, it’s clear that the U.S. economy is still moving in fits and starts, and this will likely encourage the Federal Reserve to keep interest rates low. As we all know, this is good news for stock investors.
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 February, personal income climbed 0.4%, beating economists’ expectations of a 0.3% increase. February marks the second consecutive month that wages and salaries have risen. January’s results were revised higher to reflect a 0.4% gain in personal income, up from 0.3%. Meanwhile, consumer spending rose just 0.1% in February. This was below expectations of a 0.3% increase.
Last Monday, the Commerce Department announced that consumer spending only rose 0.1% in February, which was well below economists’ consensus estimate of a 0.3% increase. In January, consumer spending declined -0.24%, so overall consumer spending has declined in 2015, which is raising concerns that first-quarter GDP may be significantly lower than many economists have been estimating.
The Bottom Line: When adjusted for inflation, consumer spending actually fell in February. So when you factor in the 0.2% drop in spending for January, it’s clear that 2015 has gotten off to a rocky start. While this will likely weigh on first-quarter GDP, the expectation is that consumer spending will heat up in the second quarter.
Consumer Confidence
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 March, the Conference Board’s consumer confidence index rose to a reading of 101.3, up from a revised 98.8 in February. This was much better than economists’ consensus expectation of a 96.9 reading. At the same time, the current conditions sub-index declined from 112.1 in February to 109.1 in March. Meanwhile, the expectations index increased from 90.0 in February to 96.0 in March.
The Bottom Line: Thanks to rising income and an improving labor market, consumers are now more confident about their near-term prospects. Interestingly, consumer confidence also sometimes rises in the spring, especially after a harsh winter. So, some of the better-than-expected consumer confidence could also have been seasonal in nature.
Construction Spending
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: In February, construction spending dipped less than expected, retreating 0.1% to an annual rate of $967.1 billion. Economists had expected a 1.0% drop in February. Breaking down February’s results, spending on private construction projections rose 0.2% while public construction retreated 0.8%. At the same time, January’s construction spending was revised lower to reflect a 1.7% decrease, compared with the previously reported 1.1% pullback.
The Bottom Line: This is the second month in a row that construction spending has retreated. However, given that it is still 2.1% higher than a year ago, it’s clear that the long-term trend is still positive.
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 Mar. 28, initial claims for unemployment fell by 20,000 to a seasonally adjusted 268,000. Economists were looking for claims to total 295,000, so this was better than expected. The four-week moving average dropped from 300,250 to 285,500.
The Bottom Line: Claims are now at a nine-week low. 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: In February, the U.S. trade gap shrunk by 17% to $35.4 billion. This surprised economists, who had expected the gap to widen to $43.0 billion. Declining oil imports caused overall imports to fall 4.4% to $221.7 billion. Meanwhile, exports fell 1.6% to $186.2 billion. January’s trade balance was revised to reflect a $42.7 billion deficit, wider than the previously reported $41.8 billion deficit.
The Bottom Line: The trade deficit is now the smallest it has been since 2009. While this will likely boost first-quarter GDP growth, the drop in exports could become a problem over the long run.
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: In February, new orders for factory goods rose 0.2%, surpassing economists’ expectations of a 0.5% decrease. Excluding transportation orders, the measure jumped 0.8%. Meanwhile, orders for non-defense capital goods excluding aircraft retreated 1.1%. January’s factory orders were revised lower to reflect a 0.7% decrease.
The Bottom Line: This was unexpectedly good news, especially following last week’s lackluster durable goods orders report. February’s increase represents the largest gain since July.
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.
