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.
While unemployment data is looking up — just yesterday the Labor Department reported that jobless claims are at their lowest levels in 15 years (more on that later) — other economic indicators have been poor recently, including the disappointing industrial production and retail sales figures. So, U.S. first-quarter GDP is on the verge of falling into negative territory.
Looking forward, we’re heading into the bumpy summer months. First-quarter earnings season is winding down, but second-quarter pre-announcements will begin in June and second-quarter earnings season will commence in late June and early July. Therefore, stocks should do fairly well in early summer before we get to the “dog days of summer” in August.
August could go one of two ways: It will be a bumpy ride, as it is historically, or it will be exception like it was last year and move higher. Either way, I look for the flight to quality stocks to continue, as the strong U.S. dollar continues to suppress sales and earnings growth at multinational companies.
For now, let’s take a look at the most recent economic reports to know:
Housing Starts and Building Permits
What It Measures: Homebuilders apply for building permits and begin construction on residential units only when they are confident that these units will be sold. As a result, these figures are a great indicator of the direction of the housing industry. An increase in housing starts and building permits usually occurs a few months after a reduction in mortgage rates.
The Breakdown: The Commerce Department report on Tuesday, May 19 showed that home construction surged in April, with U.S. housing starts increasing 20.2% to an annual rate of 1.14 million homes, the fastest pace since November 2007. Single-family home construction rose 16.7% in April, while apartment building surged 31.9%. Building permits increased 10.1% over March to an annual rate of 1.14 million last month.
The Bottom Line: The jump in housing starts and building permits in April could very well be the prelude to an increase in new homes sales in the upcoming months.
Initial Claims for Unemployment
What It Measures: Initial Claims for Unemployment 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 30,000 claims to signal a meaningful change in job growth.
The Breakdown: The Labor Department reported yesterday that initial claims for unemployment increased to 274,000 for the week ended May 16. This missed economists’ expectations for claims to total 270,000. The four-week moving average fell to 266,250, the lowest level in 15 years.
The Bottom Line: While economic data has been relatively missed lately, the continuing decline in the four-week moving average of jobless claims is a positive sign that the U.S. labor market is bouncing back.
Existing Homes Sales
What It Measures: The Existing Homes Sales report is a good indicator of activity in the housing sector. Aside from total home sales, two other indicators are worth watching in this report: 1) the inventory of homes for sale and 2) the median price.
The Breakdown: In April, sales of existing homes slipped 3.3% to a 5.04 million annual rate, which was below economists’ forecast for an increase to a 5.24 million pace. The sales pace in March was revised higher to 5.21 million, up from the previous 5.19 million. Housing inventory increased to 2.21 million last month, and it would now take 5.3 months to sell all homes currently on the market.
The Bottom Line: After March’s robust home sales pace, the April figure was disappointing, to say the least. However, continuing low interest rates and a recovering job market should help boost home sales in the coming months. Plus, April’s home sales rate was still above the annual sales pace of 5 million.
Index of Leading Economic Indicators
What It Measures: This is an index that compiles all of the economic indicators, including jobless claims, money supply, new orders, building permits and stock prices. It is a broad measure that is a good predictor of patterns in the economy.
The Breakdown: The Conference Board reported that its Leading Economic Index increased 0.7% to 122.3 in April. This was more than double economists’ predictions for a 0.3% increase.
The Bottom Line: This marked the eighth-straight gain in the index, and implies that the U.S. economy is continuing to expand, and the slowdown in GDP growth may be contained to the first quarter.
Consumer Price Index (CPI)
What It Measures: The price level of a fixed market basket of goods and services purchased by consumers. CPI is the most popular inflation indicator. So, CPI is a very important report that can move the market.
The Breakdown: The Labor Department reported that the CPI increased 0.1% in April, after rising 0.2% in March. Core CPI, which excludes food and energy, climbed 0.3%, which as was the largest gain since January 2013.
The Bottom Line: In the past 12 months, CPI has fallen 0.2%, while core CPI has risen 1.8%. Some economists feel that this could entice the Federal Reserve to raise interest rates in September or even July. However, I still believe that recent economic data will keep the Fed standing pat through 2015.
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.
