The Stock Market Pulse

($49.95/month value)

Week of March 2nd, 2009

 

Weekly review of the markets

 

Last week, we were hoping for a rebound off the support level we were at.

Monday, the open was promising but it rapidly turned when it was obvious the plans were lacking the clarity investors were looking for. We managed to close above the November lows which was allowing us to cling to our hopes

Tuesday, started with a wave of short covering based on some good comments from Bernanke about the current crisis which is expected t end in 2009 and make way for a good recovery in 2010

Wednesday, Following the rally on Tuesday investors took the little profits they had made proving rallies these days have nothing to do with confidence the markets are turning...

Thursday durable goods came down 5.2% vs the -2.3% we were expecting. Jobless claims increased 36000, now totaling over 5 millions. The Federal Deposit Insurance Corporation (FDIC) announced that the number of financial institutions now in trouble went from 171 to 252. All these bad news were just to much for the markets to absorb so we had another down day. The good news is that we still managed to remain over Monday's low.

Friday we learned the GDP contracted even more than anticipated at 6.2%. This follows a 3.8% contraction in Oct-Dec. What saved the day is the news the government injected $25B in CITIgroup in return for 36% participation. We barely closed higher than the November lows...

This Week

This week once again we are hovering close to the November lows and in my opinion, the longer we stay around here the higher the odds we'll go lower so we can only hope we'll bounce up soon! This week is filled with important economic data and although the current levels reflect bad news all around there's only so much we can take. It all has to do with confidence and right now we're at an all time low thus we desperately need some good news and this good news could come from some clarifications on how the government plan to help the financial sector.

In my opinion we are very close to an huge bounce so if you are playing the "short" game, I wouldn't stay short overnight... That being said technically we should see now lows so it's anybody's guess right now...

Like I said, this week some important economic data is underway so check it out further down in this report.

Technically, the triangle breech could theoretically bring it down to the 6000 levels!

 

 

The S&P, finally broke through the support at 7500

 

 

One last comment, this one about the VIX: ( Volatility index) We are now hovering around 45 but until we stabilize around 35 we'll have to deal with irrational activities.

 

 

 

*if you want more information on technical indicators and Technical analysis in general I strongly recommend you click here

 

Economic Calendar Data Source: Bloomberghttp://www.bloomberg.com/markets/ecalendar/index.html

(Reports I consider will impact the market the most with definitions and expectations)

 (Soon to be a section for Investor Rules members only ) Not a member yet? Just go to

 

http://www.InvestorRules.com/membership.html

 

 

Monday March 2nd

 

Personal Income and Outlays  ( market moving indicator)
08:30ET
 

 

Definition
Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.

Why Do Investors Care?
The income and outlays data are another handy way to gauge the strength of the consumer sector in this economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds are typically used by the bank for lending and therefore contribute to economic activity. In the past twenty years, personal savings have diminished rapidly as consumers have spent a greater and greater share of their income.

The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.

Highlights
The personal income report for January came in stronger than expected but special factors are being missed by initially positive market reaction. The numbers are not quite as good as believed on first impression. Personal income in January rose 0.4 percent, following a 0.2 percent decline in December. The January increase was larger than the consensus forecast for a 0.2 percent fall. Special factors, including January pay raises for federal civilian and military personnel, boosted personal income. Partially offsetting was a special downward adjustment for loss of bonuses in many industries. Excluding special factors, personal income rose 0.2 percent in January.

Within personal income, the wages and salaries component actually declined 0.2 percent after a 0.4 percent fall in December. Consumer spending made at least a temporary comeback in January, rebounding 0.6 percent after a 1.0 percent drop the previous month. Prior to January, personal consumption had declined for six months in a row. The January rise was above the market forecast for 0.4 percent bounce back. Interestingly, the recovery in spending was largely in nondurables as consumers likely snapped up post-holiday bargains and decided to crank up the SUVs on cheaper gasoline prices.

The direct impact of lower oil prices on headline inflation may be waning as the headline number posted its first positive since September. The headline PCE price index rose 0.2 percent, following a 0.5 percent decline in December. Meanwhile, the core PCE price index edged up 0.1 percent, matching expectations and compared to no change the month before.

Year on year, personal income growth improved to up 1.9 percent from up 1.6 percent in December. Headline PCE inflation eased to up 0.7 percent from up 0.8 percent the prior month. Core PCE inflation slowed to 1.6 percent from 1.7 percent in December.

Compared to recent personal income reports, the January news was quite welcome. However, the trend in income is still flat to down. And we are not likely to see the favorable spending numbers repeated in February if employment falls as much as expected this coming Friday.

Market Consensus Before Announcement
Personal income dipped 0.2 percent in December, following a 0.4 percent fall in November. Within personal income, the wages and salaries component posted a 0.3 percent decline after a 0.2 percent fall in November. Consumer spending continued to retreat in December, plunging 1.0 percent after a 0.8 percent drop the prior month. Personal consumption has declined for six months in a row. The limited goods news this past week was on inflation - but this was due not just to lower oil prices but an anemic economy. The headline PCE price index declined 0.5 percent in December while the core PCE price index was unchanged for the third month in a row. Looking ahead, the 598,000 drop in payroll employment points to another decline in personal income in January though a moderate 0.3 percent gain in average hourly earnings will help limit the damage. Consumer spending is likely to be mixed. Durables are likely down on motor vehicle sales but nondurables and services are likely to improve based on retail sales excluding autos. On the inflation front, look for a rebound in PCE inflation for January based on the CPI and core CPI rebounding 0.3 percent and 0.2 percent, respectively.

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures.

Data Source: Haver Analytics  

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 2/2 3/2 3/27 4/30 6/1 6/26 8/4 8/28 10/1 10/30 11/25 12/23 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

ISM Mfg Index
10:00 ET
Consensus 33.8 

Definition
The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where readings above (below) 50 percent indicate an expanding (contracting) factory sector. Export orders, import orders, backlog orders and prices paid for raw and unfinished materials are also measured, but these are not included in the overall index. (Institute for Supply Management)

Why Do Investors Care?
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The ISM manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report that helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.

Highlights
Rates of decline are showing a welcome slowing trend in the manufacturing sector. The ISM manufacturing index edged 2 tenths higher in February to a 35.8 level that is meaningfully above December's low of 32.9. Readings on new and unfilled orders are stable with production improving. One good sign is a dip back in the customer inventory index, to 51.0 from 55.5 in January to indicate that fewer manufacturers say inventories at other businesses are too high, an indication that the intensity of destocking may be easing.

But employment is definitely not improving, instead contracting further, down nearly 4 points to 26.1, and pointing to yet another month of intense contraction in the manufacturing component of Friday's jobs report. Firms, as they do during downturns, are cutting back on their workforces even as conditions stabilize. Prices continue to contract, unchanged at 29.0 and underscoring that demand in the manufacturing sector remains weak. Today's report is a mild plus, but still a plus, for the economic outlook and may give the stock market a lift through the day.

Market Consensus Before Announcement
The Institute for Supply Management's manufacturing index was still in negative territory in January but not as deep as in December. The ISM's manufacturing index rose more than 2-1/2 points to 35.6 which is still well below the breakeven point of 50, indicating that contraction continues but at a less rapid pace. The freefall also slowed for the new orders index, which rose to 33.2 from a 23.1 but remained well in contraction territory. The decline in prices paid continued but not quite at the precipitous pace in December. The prices paid index rose to 29.0 from 18.0 in December. Looking ahead, manufacturing is likely to continue downward in the near term as demand has continued to fall in many sectors - including consumer, housing, business investment, and exports.

  

The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/2 2/2 3/2 4/1 5/1 6/1 7/1 8/3 9/1 10/1 11/2 12/1 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Construction Spending
8:30 AM
 Consensus: -1.5%

 

Definition

The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars.

Why Do Investors Care?

Construction spending has a direct bearing on stocks, bonds and commodities because it is a part of the economy that is affected by interest rates, business cash flow and even federal fiscal policy. In a more specific sense, trends in the construction data carry valuable clues for the stocks of home builders and large-scale construction contractors. Commodity prices such as lumber are also very sensitive to housing industry trends.

Businesses only put money into the construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home.

A portion of construction spending is related to government projects such as education buildings as well a highways and streets. While investors are more concerned with private construction spending, the government projects put money in the hands of laborers who then have more money to spend on goods and services.

That's why construction spending is a good indicator of the economy's momentum.

 

Highlights
Construction spending in January fell at a faster pace – sharply worse than expected. Construction outlays declined a monthly 3.3 percent in January, after dropping 2.4 percent the month before. January's number was worse than the consensus forecast for a 1.5 percent decrease. Weakness in January was led by a sharp 4.3 percent plummet in private nonresidential outlays. The private residential component also declined and by 2.9 percent while public outlays rebounded 0.6 percent.

On a year-on-year basis, overall construction outlays were down 9.1 percent in January, compared to down 6.7 percent in December.

Today's construction numbers point to how bleak this sector is. Homebuilders have been pulling back on new construction for some time but now weakening corporate revenues are damping nonresidential construction.

The January construction outlays report certainly is a negative for equities although the personal income report and ISM manufacturing report were somewhat better than expected. But the big news is the financial difficulties of AIG reminding markets what bad shape the financial sector is in and equities were already headed down at open.
Market Consensus Before Announcement
Construction spending in December continued to plummet across all major sectors. Construction outlays fell 1.4 percent in December, after posting a 1.2 percent drop in November. Looking ahead, the 16.8 percent drop in housing starts in January indicates that the residential portion of construction outlays should continue downward. Weakening corporate profits and lower revenues for state and local governments indicate that the trend for nonresidential and public outlays is down for January and coming months.

Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.

Data Source: Haver Analytics

Tuesday March 3rd

 

Motor Vehicle Sales
 Consensus: 6.2M

Definition

Unit sales of domestically produced cars and light duty trucks (including sport utility vehicles and mini-vans). Individual manufacturers report usually report sales on the first business day of the month. Motor vehicle sales are good indicators of trends in consumer spending.

Why Do Investors Care?

Since motor vehicle sales are an important element of consumer spending, market players watch this closely to get a handle on the direction of the economy. The pattern of consumption spending is one of the foremost influences on stock and bond markets. Strong economic growth translates to healthy corporate profits and higher stock prices. The bond market focus is on whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s.

Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, although motor vehicle sales moderated to a lesser extent. A low interest rate environment through 2005 curtailed the decline in motor vehicle sales. Granted, since automakers offered many incentives to boost sales in the past several years, their profits have suffered.

In a more specific sense, auto and truck sales show market conditions for auto makers and the slew of auto-related companies. These figures can influence particular stock prices and provide insight to investment opportunities in this industry. Given that most consumers borrow money to buy cars or trucks, sales also reflect confidence in current and future economic conditions.

Market Consensus Before Announcement
Sales of domestic motor vehicles proved extremely weak in January as unit sales of North American-made cars and light trucks fell to a 6.8 million annual rate from a 7.7 million rate in December. With the recession deepening and questions remaining over the viability of U.S. automakers, sales are likely to remain depressed in February.

Motor vehicles sales slowed notably in 2006 as a result of higher interest rates and a jump in gasoline prices but remained at reasonable levels due to strong income growth. Late in 2006 and in early 2007, gasoline prices were down from 2006 highs but moderating economic growth kept sales from rebounding. Truck shares hit their peak in 2005 when gasoline was cheap and remain sharply lower since gasoline prices spiked in 2006.

Data Source: Haver Analytics

 

ICSC-Goldman Store Sales
7:45ET

Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.

Why Do Investors Care?
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.

SPEECHES

Council of Economic Advisers Chair Christina Romer to speak at the NABE economic policy conference, in Washington.

at 7:45

Atlanta Federal Reserve Bank President Dennis Lockhart to speak about the U.S. economy, on panel, in Tampa, Florida. Audience Q&A expected

at 8:00

 

Redbook
10:00 ET

Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Why Do Investors Care?
Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.

Pending Home Sales Index
10:00ET
 Consensus: 85.1

Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies

Market Consensus Before Announcement
The pending home sales index bumped up in December, jumping 6.3 percent to 87.7. The big question is whether the December was real improvement based on lower mortgage rates or whether there was just some seasonality issue at play (modest real gains in housing get inflated by large seasonal factors during winter months). With labor markets worsening, it is likely that December's improvement was temporary.

 

Wednesday March 4th    

 

MBA Purchase Applications
07:00ET

Definition

The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Why Do Investors Care?

This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

 

Challenger Job-Cut Report
7:30ET

Definition
This monthly report counts and categorizes announcements of corporate layoffs, but it must be analyzed with caution. It doesn't distinguish between layoffs scheduled for the short-term or the long term, or whether job cuts are handled through attrition or actual layoffs. Unlike most economic data, this series is not adjusted for seasonal variation. (Challenger, Gray & Christmas, Inc.)  

Why Investor's Care
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and 2001 and again in 2003, but strengthened in 2004 and 2005.

Chain store sales not only give you a sense of the big picture, but also the trends among individual retailers and different store categories. Perhaps the discount chains such as Target and Wal-Mart are doing well, but the high-end department stores such as Tiffany's are lagging. Maybe apparel specialty retailers are showing exceptional growth. These trends from the monthly chain store data can help you spot specific investment opportunities, without having to wait for the quarterly or annual reports.

Just a few words of caution. Sales are reported as a change from the same month, a year ago. It is important to know how strong sales actually were a year ago to make sense of this year's sales. In addition, sales are usually reported for "comparable stores" in case of company mergers.

2009 Release Schedule

Released On: 1/7 2/4 3/4 4/1 5/6 6/3 7/1 8/5 9/2 10/1 11/4 12/2 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

ADP Employment Report
8:15 ET

Definition
The ADP national employment report is computed from a subset of ADP records that in the last six months of 2006, represented approximately 364,000 U.S. business clients and approximately 22 million U.S. employees working in all private industrial sectors. The data are collected for pay periods that can be interpolated to include the week of the 12th of each month, and processed with statistical methodologies similar to those used by the U.S. Bureau of Labor Statistics to compute employment from its monthly survey of establishments. ADP contracted with Macroeconomic Advisors to compute a monthly report that would ultimately help to predict monthly nonfarm payrolls from the Bureau of Labor Statistic's employment situation. The ADP report only covers private (excluding government) payrolls at this time. (Automatic Data Processing (ADP)/Macroeconomic Advisers)

Why Do Investors Care?
Market players have become accustomed to the excitement on employment Friday and realize the rich detail of the monthly employment situation can help set the tone for the entire month. While economists have certainly improved their nonfarm payroll forecasts over the years, it is not unusual to see surprises on employment Friday. To that end, the new ADP national employment report can help improve the payroll forecast by providing information in advance of the employment report.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus. Initially, the ADP national employment report will not have wage information, but their goal is provide wage information, along with industry and regional information as well.

Nonetheless, by tracking jobs, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.

ISM Non-Mfg Survey
10:00ET
 Consensus:41.0

Definition
The non-manufacturing ISM surveys nearly 400 firms from 60 sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade. Beginning with the January 2008 report, a new composite index was made public and is now the headline number. It is considered an indicator of the overall economic conditions for the non-manufacturing sector and consists of four equally weighted indexes: business activity, new orders, employment, and supplier deliveries.

Why Do Investors Care?
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM non-manufacturing survey's business activity index, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly-and causing potential inflationary pressures.

The ISM manufacturing index has a long history - dating to the 1940s. This new report (beginning in 1998) was originally not adjusted for seasonal variation, but the ISM has since established seasonally adjusted figures for several of the ISM non-manufacturing components (including the business activity index) since 2002 and a composite index starting in 2008. As a result, the ISM non-manufacturing survey has garnered more attention and is almost as widely followed by financial market participants as its manufacturing cousin.

Market Consensus Before Announcement
The composite index from the ISM non-manufacturing survey rose nearly 3 points in January to a 42.9 level that nevertheless still indicates contraction, but again at a slower rate than the prior month. The new orders index also improved but remained below the breakeven point, suggesting that the index will be down in February.

The ISM non-manufacturing survey does not compile a composite index like its manufacturing cousin. The business activity index, which is actually akin to the production index in the manufacturing survey, is widely followed as the key figure from this survey.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/6 2/4 3/4 4/3 5/5 6/3 7/6 8/5 9/3 10/5 11/4 12/3 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

EIA Petroleum Status Report (Pay attention to this one)
10:30 ET

Definition
The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products.

Why Do Investors Care?
Petroleum product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices - or price increases for a wide variety of petroleum products such as gasoline or heating oil. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for crude oil may not be as strong. If inventories are rising, this may push down oil prices.

Crude oil is an important commodity in the global market. Prices fluctuate depending on supply and demand conditions in the world. Since oil is such an important part of the economy, it can also help determine the direction of inflation. In the U.S. consumer prices have moderated whenever oil prices have fallen, but have accelerated when oil prices have risen.

 

Beige Book
  2:00 ET 

Definition
This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.

Why Do Investors Care?
This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.

Thursday March 5th

 

 

Jobless Claims                   
08:30ET ET
Consensus 650K

Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.

Why Do Investors Care?
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.

By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.

Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.

Market Consensus Before Announcement
Initial jobless claims for the February 21 week jumped 36,000 to 667,000, the highest level in 26 years (prior week revised 4,000 higher to 631,000). Continuing claims were the worst ever, up 114,000 to 5.112 million for the week ending February 14. With companies continuing to announce layoffs, high levels of initial claims are likely for some time.
 

Weekly series fluctuate more dramatically than monthly series even when the series are adjusted for seasonal variation. The 4-week moving average gives a better perspective on the underlying trend.

Data Source: Haver Analytics  

 

Productivity and Costs
8:30ET

Non farm consensus 1.5%

Unit labor costs 3.4%

Definition
Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends.

Why Do Investors Care?
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. This is a hot topic these days with the economy so strong, the labor market so tight, yet inflation so well-behaved.
Some Wall Street experts assert that dramatic productivity advances are allowing the economy to sustain a much faster pace of growth than previously thought possible. Fed chairman Greenspan has expressed skepticism about those assertions, however. In either case, the productivity data give investors important clues on how stocks and bonds can be expected to perform, and the market reactions to these releases show the true importance of productivity growth.

Market Consensus Before Announcement
Nonfarm productivity for the fourth quarter's initial estimate came in much better than expected. Fourth quarter productivity increased at a 3.2 percent annualize rate, following a 1.5 percent rise in the third quarter. But the stronger-than-expected positive number was due to hours worked falling more than output, down 8.4 percent and 5.5 percent, respectively. Meanwhile, unit labor costs eased to a 1.8 percent annualized increase, following a 2.6 percent gain in the third quarter. However, the sharp downward revision to fourth quarter real GDP (from down 3.8 percent to down 6.2 percent) will likely cut into the productivity gain and boost unit labor costs. The output component of productivity and unit labor costs is based on many of the source data used for real GDP.

Nonfarm productivity growth has remained healthy during this expansion, but it has prevented employment from growing very fast and this hurt income growth to some extent. Unit labor costs tend to fall when productivity growth accelerates and then rises as productivity growth abates.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 2/5 3/5 5/7 6/4 8/11 9/2 11/5 12/3 Released For: Q4:08 Q4:08 Q1:09 Q1:09 Q2:09 Q2:09 Q3:09 Q3:09

 

 

Factory Orders
14:00 ET 
 

 

Definition
Factory orders represent the dollar level of new orders for both durable and nondurable goods. This report gives more complete information than the advance durable goods report which is released one or two weeks earlier in the month.

Why Do Investors Care?
Investors want to keep their fingers on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth which is less likely to cause inflationary pressures. By tracking economic data like factory orders, investors will know what the economic backdrop is for these markets and their portfolios.
The orders data show how busy factories will be in coming months as manufacturers work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in production. Shipments reveal current sales. Inventories give a handle on the strength of current and future production. All in all, this report tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.

Market Consensus Before Announcement
Factory orders are looking ugly - pointing to further declines in manufacturing. Factory orders are pointing to greater declines in shipments and greater contraction in payrolls. New factory orders fell a revised 4.7 percent in December (originally down 3.9 percent), following a 6.5 percent drop in November. We can expect more of the same for January as we already have the initial estimate for the durables component at down a sharp 5.2 percent for the month.

Even though monthly shipment data fluctuate less than new orders, both series show underlying trends more clearly by looking at year-over-year changes. In 2005 for example,new orders rose more rapidly than shipments due to large gains in aircraft orders. Aircraft orders have a long lead to shipment.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/6 2/5 3/5 4/2 5/1 6/3 7/2 8/5 9/2 10/2 11/3 12/4 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

EIA Natural Gas Report (Pay attention to this one)

10:30 ET

Definition
The Energy Information Administration (EIA) provides weekly information on natural gas stocks in underground storage for the U.S., and three regions of the country. The level of inventories help determine prices for natural gas products.

 

Why Do Investors Care?
Natural gas product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in natural gas. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for natural gas may not be as strong. If inventories are rising, this may push down oil prices.

 

Friday March 6th 

Employment Situation
08:30 ET
 

 

Definition
The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor)

Why Do Investors Care?
If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions are dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.

 

Market Consensus Before Announcement
Nonfarm payroll employment in January showed the economy worsening further with a third consecutive drop in payroll employment topping half a million. Nonfarm payroll employment in January plummeted 598,000, following a fall of 577,000 in December and a decline of 597,000 in November. The latest wage inflation numbers have been a little peculiar in recent months. Average hourly earnings increased 0.3 percent in January after rising 0.4 percent in December. It is likely that average hourly earnings have been kept on the high side by a shift in the composition of those still with jobs with more low-paying jobs being cut than high-paying jobs. The civilian unemployment rate jumped to 7.6 percent from 7.2 percent in December. The January number is the highest since 7.6 percent for October 1992. Looking ahead, jobless claims have been rising and are pointing to a February job loss that is even larger than January's.

During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month.

Data Source: Haver Analytics  

The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/9 2/6 3/6 4/3 5/8 6/5 7/2 8/7 9/4 10/2 11/6 12/4 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Consumer Credit
15:00 ET

 

 

Definition

The dollar value of consumer installment credit outstanding. Changes in consumer credit indicate the state of consumer finances and portend future spending patterns.

Why Do Investors Care?
Growth in consumer credit can hold positive or negative implications for the economy and markets. Economic activity is stimulated when consumers borrow within their means to buy cars and other major purchases. On the other hand, if consumers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. That could put a big dent in economic growth.
The demand for credit also has a direct bearing on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business.
Financial market players focus less attention on this indicator because it is reported with a long lag relative to other consumer information. Long term investors who do pay attention to this report will have a greater understanding of consumer spending ability. This will give them a lead on investment alternatives.

Market Consensus Before Announcement
Consumer credit continues to contract and contract at an unprecedented rate, reflecting both tightening credit standards and a hunkering down by consumers. Consumer credit fell $6.6 billion dollars in December with revolving credit showing the great bulk of the contraction. Consumer credit fell a revised $11.1 billion in November. Declines of this size in overall consumer credit have not been seen since the 1990-91 recession. There are cross currents going into the January numbers. While sales of domestics were down, combined domestics and imports motor vehicle sales nudged up in January and will be a positive on credit growth but the worsening jobs pictures suggests that consumers will be retrenching elsewhere for the month. Net, we will likely see another decline in consumer credit outstanding in January.

The debt-to-income ratio shows how indebted consumers are relative to income. A rising ratio indicates that consumers are taking on greater debt burdens with respect to income growth. In a growing economy, this may not be dangerous. However, indebtedness could quickly become a problem if income and employment conditions turn around. The yearly change in debt outstanding shows yearly trends in debt growth and tends to be less volatile than the monthly change.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/8 2/6 3/6 4/7 5/7 6/5 7/8 8/7 9/8 10/7 11/6 12/7 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

te how different types of investments will perform.

 

 

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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