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.
Rest assured that the foundation of this market is really good, as the market continues to yield more than a bank and Treasury securities.
Let’s take a look at the nine economic reports that came out last week.
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: Retail sales bounced back in March, rising 0.9%, after three straight months of declines. This was in line with economists’ expectations. Excluding automobiles, gasoline, building materials and food services, retails sales increased 0.3%, up from a 0.2% decline in February.
The Bottom Line: After a rough winter season, it looks like U.S. consumers are warming up to spending more, and the pullback in economic growth during the first quarter could be short-lived. And since Americans’ savings are at their highest level in more than two years, we could see a nice rise in consumer spending in the months ahead.
Producer Price Index (PPI)
What It Measures: This is the price of goods at the wholesale level for the past month, and a first sign of inflation.
The Breakdown: The Labor Department reported that the Producer Price Index increased 0.2% in March, after declining 0.5% in February. Core PPI, which excludes food and energy, climbed 0.2% higher. Economists were looking for overall prices to rise 0.2% and core PPI to increase 0.1%. Food prices declined 0.8% in March, while energy prices increased 1.5%.
The Bottom Line: While PPI is down 0.8% in the past year, core PPI has risen 0.9%. With energy prices now stabilizing, we could see inflation and the PPI start to rise modestly in the coming months. Any rise in inflation could put some pressure on the Fed to lift interest rates this year.
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: In February, U.S. business inventories increased a modest 0.3%, which was above economists’ expectations for a 0.2% rise. Excluding autos, retail inventories climbed 0.5% in February, while business sales remained unchanged. At the current sales pace, it would take 1.36 months for businesses to empty their shelves.
The Bottom Line: Given the continuing high ratio of inventories, businesses will likely remain hesitant to add more stock to their shelves.
Industrial Production
What It Measures: The index of industrial production measures the amount of output from the manufacturing, mining, electric and gas industries — several huge industries that literally power our economy. Manufacturing production, the largest component of the total, is derived from using the manufacturing hours worked from the employment report.
The Breakdown: Industrial production slipped 0.6% in March, after a 0.1% increase in February. That represented the largest drop in more than two and a half years. Economists were looking for a 0.3% decline. Capacity utilization dropped 0.6% to 78.4% last month, which was also below economists projects for 78.7%.
The Bottom Line: This was a disappointing report, to say the least. Overall, industrial production declined 1% in the first quarter, which marks the first quarterly decline since 2009. A 17.7% pullback in oil and gas well drilling weighed on mining production, and that dragged down industrial production last month. The poor report signals that the U.S. economy weakened during the first quarter.
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 11, jobless claims increased by 12,000 to a 294,000 annual rate. Economists were expecting claims to decline to a 280,000 annual pace. The four-week moving average increased slightly to 282,750 but still remains below the 300,000 threshold.
The Bottom Line: Despite the uptick in jobless claims last week, the job market is continuing to show strength. In fact, the people still getting aid after an initial week slipped by 40,000 to 2.27 million for the week ending April 4, which is the lowest reading since December 2000.
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: In March, housing starts increased 2% to a 926,000 annual pace, which was below economists’ expectations for a 1.04 million-unit annual pace. Building permits decreased 5.7% to a 1.04 million-unit pace.
The Bottom Line: Again, harsh winter weather hindered home construction last month. But it is worth noting that we are starting to see a rebound in regions hit the hardest by winter, as housing starts in the Northeast and Midwest increased a stunning 115% and 31.3%, respectively.
Consumer Price Index
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 this is a very important report that can move the market.
The Breakdown: For the third-straight month, the core consumer price index, excluding food and fuel, increased 0.2% in March. Overall, CPI also rose 0.2%. The Labor Department reported that the increase was due to gains in medical care, rents, clothing and used vehicles.
The Bottom Line: Much of the increase in CPI in March can be attributed to rising gasoline prices, which increased nearly 4% last month. With oil prices stabilizing, we’re also seeing a slight increase in inflation.
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 report that its Leading Economic Index increased 0.2% to 121.4 last month, up from a 0.1% increase in February. This was slightly below analysts’ expectations for a 0.3% rise.
The Bottom Line: While this was the seventh-straight gain, the weaker-than-expected economic activity could signal that the U.S. economy is still growing at a slower pace.
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 showed a preliminary April reading of 95.9, up from March’s 93.0 and better than analysts’ expectations for 94.0.
The Bottom Line: The increase in the University of Michigan’s Consumer Sentiment Index is the second-highest level in more than eight years, and signals that the U.S. consumer is growing more optimistic.
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.
