I warned you that it was going to be a “volatile first-quarter earnings season,” and that is exactly what the market experienced in the past week.
However, investors need to pay attention to more than just earnings. 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.
Let’s take a look at six of the latest economic reports.
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 April, the Conference Board’s consumer confidence index slipped to a 95.2 reading, falling short of economists’ predictions for a 102.5 reading. The index’s March reading was revised higher to 101.4, up from 101.3. Breaking it down further, consumers looking for business conditions to improve in the next six months fell to 16%, down from 16.8%, while those expecting more jobs dropped to 13.8%, down from 15.3%.
The Bottom Line: It’s disappointing that consumer confidence slipped so much in April, especially after such a strong reading in March. However, given softening economic conditions here in the U.S., it’s not surprising that U.S. consumers are growing a little more cautious.
First-Quarter GDP (Final 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 week that the U.S. economy nearly stalled in the first quarter, only growing at a paltry 0.2% pace. That’s down from a 2.2% pace in the fourth quarter and a 5% pace in the third quarter. This was also lower than economists’ expectations for the U.S. economy to grow at a 1% pace.
The Bottom Line: The lower-than-expected first-quarter GDP wasn’t all that surprising, given severe winter weather, port disruptions on the West Coast, a strong U.S. dollar pinching exports and cheap crude oil during the first three months of the year. And many economists are predicting that second-quarter GDP growth will rebound.
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 April 25, initial claims for unemployment dropped by 34,000 to 262,000. Economists had forecast new claims to be at 288,000 last week. And initial claims for the prior weeks was revised up a bit to 296,000. The four-week moving average slipped to 283,750.
The Bottom Line: This is the lowest level in jobless claims that we have seen in 15 years. In addition, the report showed that continuing claims slipped to 2.253 million for the week ending April 18, which is the lowest level since early December 2000. So the U.S. labor market is still showing signs of strength.
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: For the month of March, personal income didn’t change from February, staying at 0%, while spending increased slightly to 0.4%. Economists were looking for personal income to grow 0.2% and spending to rise 0.5%.
The Bottom Line: While this was an overall disappointing report, the finer details were actually more positive. Consumer spending was at 1.9%, which isn’t spectacular but stills strong, and real after-tax income increased 6.2% in the first quarter.
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: For the month of March, U.S. construction projects declined 0.6% to a seasonally adjusted rate of $967 billion after being flat in February. Economists forecasted a drop of only 0.5%. Housing construction also declined by 1.6%, while government spending on housing projects dropped for a third time in row by 1.5%. Meanwhile, non-residential construction increased by 1%.
The Bottom Line: The harsh winter weather did impact construction spending, but with spring well under-way, economists are expecting a rebound in the coming months.
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 University of Michigan’s Consumer Sentiment Index finished the month of April at a 95.9 reading. Economists were expecting a 96.0 reading, so this was slightly lower than expected. However, this is an increase from last month’s rating of 93.0, as low interest rates and low inflation continue to influence consumer optimism.
The Bottom Line: The Federal Reserve has been punting interest rate hikes for a while, and with economic reports like poor GDP and mixed job numbers, I don’t expect an interest rate hike anytime soon. So, consumer confidence should remain at current levels or even increase during the warmer months with the continuation of low interest rates.
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.
