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. Last week’s government reports brought a blizzard of information, so let’s get down to what is was and more importantly, what it means to you and your stocks.
Retail Sales
What It Measures: Through this report, the Commerce Department announces total receipts of retail stores for the past month. Retail sales do not include spending on services, which makes up over half of total consumption. The report also covers retail sales ex-autos, removing the most volatile consumer purchases. The changes in retail sales are followed closely and are a good indicator of broad consumer spending patterns.
The Breakdown: On Monday the Commerce Department announced that March retail sales rose 0.8%, which was much better than economists’ consensus estimate of 0.3%. Fully 11 of 13 sales categories were higher in March, with electronics, clothing and furniture sales leading the way. March vehicle sales by dollar volume rose by 0.9% due to consumers buying more fuel-efficient cars and trucks. Not surprisingly, sales of gasoline rose 1.1% due to higher prices at the pump.
The Bottom Line: This was probably the strongest economic report this week; the American consumer is clearly driving much of this recovery.
Business Inventories
What It Measures: The Commerce Department’s business inventories report includes sales and inventory statistics from all three stages of the manufacturing process (manufacturing, wholesale and retail). The retail inventory number is an important part of this report as it can move the market. The report also can affect the Gross Domestic Product outlook.
The Breakdown: A separate report on Monday showed that business inventories rose 0.6% in February, after a 0.8% rise in January. Economists expected inventories to rise 0.5%. This fell in line with the data from last week’s wholesale inventories report.
The Bottom Line: This inventory growth, plus the better-than-expected retail sales report, is causing some economists to revise their first-quarter GDP estimates higher. As a result, some economists are now anticipating first-quarter GDP growth of 2.8%, up from 2.3% just a couple weeks earlier.
Housing Starts and Building Permits
What It Measures: Home builders 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:
Building Permits: Building permits rose 4.4% to 747,000 in March; this topped the consensus estimate of 710,000. This represents the highest level of building permits in three and a half years.
Housing Starts: On the other hand, housing starts declined 5.7% to 654,000 while economists expected them to climb to 700,000. This represents a five-month low.
The Bottom Line: I’m pleased with the building permits results, which are the first sign of future home building activity. And, even though housing starts declined more than expected in March, most of these losses were attributable to multi-unit residences, which tend to be quite volatile. Starts for single-family homes dipped just 0.2%.
Initial Claims for Unemployment
What It Measures: They are 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: The Labor Department reported on Thursday that new claims remained elevated at 386,000 and that the previous week’s claims were revised up to 388,000. The latest week was significantly worse than economists’ consensus claim of 374,000. The closely watched four-week moving average of new claims rose by 5,500 to 374,750, which is the highest level since last January.
The Bottom Line: As a result of this report, some economists are concerned that recent gains in new payroll jobs may be on the verge of stalling somewhat.
Existing Home Sales
What It Measures: The report is a good indicator of activity in the housing sector. Aside from total sales, two other indicators are worth watching in this report: the inventory of homes for sale and the median price.
The Breakdown: In March, existing home sales dipped 2.6% to 4.48 million. This came below the consensus estimate of 4.62 million existing home sales. Meanwhile, the inventory of previously owned homes on sale increased to a 6.3 month supply; this is still considered a healthy pace.
The Bottom Line: At first glance, this is a slight setback for the housing market, but the details are a little brighter. Even accounting for March, the first quarter of 2012 represented the strongest first quarter for existing home sales in five years.
Index of Leading Economic Indicators (LEI)
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: Fortunately, the Index of Leading Economic Indicators ended the week on a high note after the Conference Board reported that it increased by 0.3% in March, and that seven of the 10 LEI components rose. This topped the consensus estimate of a 0.2% gain. The positive LEI components were interest rate spreads, building permits, stock prices, a credit index, jobless claims, new orders for consumer goods and materials, as well as new orders for non-defense capital goods (excludes aircraft). The lagging LEI components were manufacturing hours, consumer expectations and the ISM new orders index.
The Bottom Line: Since some of the lagging LEI components have positive long-term trends, the overall LEI report was very positive.
