Market Focus: Black Friday got off to a great start. Will Europe continue to overshadow Employment advances and upbeat sales and consumer confidence? It’s a jammed packed week with New Home Sales, Pending Home Sales, and House price information.
New Home Sales: New home sales measure the number of newly constructed homes with a committed sale during the month. The consensus estimate is for 310,000 slightly less than last month’s anemic 313,000 What it means to you: This provides a gauge of not only the demand for housing, but the economic momentum. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
ICSC Goldman Store Sales: 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. What it means to you: 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.
Redbook: 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. What it means to you: The pattern in consumer spending is often the foremost influence on stock and bond markets.
S & P Case-Schiller: The S&P/Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. The composite indexes and the regional indexes are seen by the markets as measuring changes in existing home prices and are based on single-family home re-sales. The indexes are based on single-family dwellings with two or more sales transactions. Condominiums and co-ops are excluded as is new construction. What it means to you: Home values affect much in the economy – especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. Many economists believe that the U.S. economy and especially the depressed housing sector will not recover until home prices firm back up. This makes watching home prices all the more important for the investor.
FHFA House Price Index: The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing, using data provided by Fannie Mae and Freddie Mac. The House Price Index is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. The consensus estimate is for a decline from last month’s 0% increase to -.1%.What it means to you: Home values affect much in the economy — especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health.
Consumer Confidence: The Conference Board compiles a survey of consumer attitudes on present economic conditions and expectations of future conditions. Three thousand households across the country are surveyed each month. The consensus estimate is for an increase from 39.8 to 45. What it means to you: Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to pull out the big bucks. Confidence impacts consumer spending which affects economic growth.
State Street Investor Confidence: The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. The State Street Investor Confidence Index measures confidence directly by assessing the changes in investor holdings of equities. The more of their portfolio that institutional investors are willing to invest in equities, the greater their confidence. What it means to you: “State Street believes direct measurement, rather than a survey of portfolio managers who often don’t have time to fill out monthly questionnaires, is a more reliable approach to consumer confidence. The investor confidence index is compiled with techniques based on modern portfolio theory. According to State Street, “the more of their portfolios that professional investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence.”
Janet Yellen (Federal Reserve Vice Chair) Speaks
Narayana Kocherlakota (Minneapolis Federal Reserve President) Speaks
EIA Petroleum Report: The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S. The level of inventories helps determine prices for petroleum products. What it means to you: 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.
Challenger Job Cut Report: This monthly report counts and categorizes announcements of corporate layoffs based on mass layoff data from state departments of labor. The job-cut report 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. Also, the job-cut report does not include jobs eliminated in small batches over a longer time period. What it means to you: The job-cut report is basically a rehash of the weekly jobless claims report but provides additional insight into where layoffs are occurring. There is industry and geographic (states) detail that is not available with weekly jobless claims.
ADP: The ADP national employment report is computed from a subset of ADP records that in the last six months of 2008, represented approximately 400,000 U.S. business clients and approximately 24 million U.S. employees working in all private industrial sectors. What it means to you: 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.
Productivity and Costs: 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. The consensus is for a 2.6% increase in Productivity and an increase of 2.3% in Unit Labor Costs. What it means to you: Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.
Chicago PMI: Manufacturing and non-manufacturing firms are both surveyed. Hence, it is not directly comparable to pure manufacturing surveys. Readings above 50 percent indicate an expanding business sector. The consensus estimate is for an increase from 58.4 to 59. What it means to you: The Chicago PMI gives a detailed look at the Chicago region’s manufacturing and non-manufacturing sectors. Many market players don’t realize that non-manufacturing activity is covered in this index and tend to focus on the manufacturing side only. On its own, it can be viewed as a regional indicator of general business activity.
Pending Home Sales Index: 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. The consensus estimate is for a rise from of 1.5 after last month’s -4.6. What it means to you: 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.
Beige Book: 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. What it means to you: This report on economic conditions is used at FOMC meetings. 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.
Weekly Jobless Claims: 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. The consensus estimate is for a decrease from 393,000 to 391,000. What it means to you: 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.
Bloomberg Consumer Comfort Index: A weekly, random-sample survey tracking Americans’ views on the condition of the U.S. economy, their personal finances and the buying climate. What it means to you: The pattern in consumer attitudes can be a key influence on stock and bond markets. Consumer spending drives two-thirds of the economy and if the consumer is not confident, the consumer will not be willing to spend. Confidence impacts consumer spending which affects economic growth.
Chain Store: Monthly sales volumes from individual department, chain, discount, and apparel stores are usually reported on the first Thursday of each month. Chain store sales correspond with roughly 10 percent of retail sales. Chain store sales are an indicator of retail sales and consumer spending trends. What it means to you: 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. 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.
Motor Vehicle Sales: Unit sales of domestically produced cars and light duty trucks (including sport utility vehicles and mini-vans). Motor vehicle sales are good indicators of trends in consumer spending. The consensus estimate is for an increase from 13.3 million units to 13.4 million units. What it means to you: 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. In a more specific sense, auto and truck sales show market conditions for auto makers and the slew of auto-related companies. Given that most consumers borrow money to buy cars or trucks, sales also reflect confidence in current and future economic conditions.
ISM Mfg Index: The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. 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. The consensus estimate is for a slight increase from 50.8% to 51.5%. What it means to you: The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and not subject to revision. 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.
Construction Spending: The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars. The consensus estimate is for .3% a increase from last months .2% increase. What it means to you: 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. 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.
Monster Employment: The Monster Employment Index is a comprehensive monthly analysis of U.S. online job demand. It is conducted by Monster Worldwide, Inc. and is based on a real-time review of a large, representative selection of career sites and job boards, including Monster,” according to Monster Worldwide. The Index presents a snapshot of employer online recruitment activity nationwide. What it means to you: When the employment index measuring job availability is falling, this bodes well for the bond market because it implies a drop in labor demand and perhaps an economic downturn. While the Fed worries about inflation, they also are concerned about rising unemployment. A rising jobless rate can mean a more accommodative monetary policy.
Employment Situation: The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. 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. The consensus estimate is for a increase from last month’s 80,000 to 1186,000, the rate to remain the same at 9.%, and average hourly earnings to be unchanged at .2%. What it means to you: The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month.
Charles Plosser (Philadelphia Federal Reserve President) Speaks