Market Focus: On the economic front, last week’s data was pretty good. The Empire State Manufacturing Survey beat expectations, as did the Housing Market Index, which moved above the 50 level for the first time since 2006. Housing starts and existing home sales were also strong, but the homebuilders were hit hard in last week’s sell-off. This week brings another full slate of economic data, with the Dallas Fed Manufacturing Survey on Monday, followed Tuesday by durable goods, the S&P Case-Shiller Housing Price Index, and new home sales.
On Wednesday, we get the final revision on first-quarter GDP, and then Thursday we’ll see the next report on jobless claims, which was a disappointment this past week. Also on Thursday, personal income and outlays data is released, along with pending home sales. The week ends with the Chicago PMI report and June’s final reading of the University of Michigan Consumer Sentiment Survey. Look for a break on the 10 year bond as that appears to be a bit oversold. Right now it appears good news is bad for the markets so be aware of what’s really in the report.
Chicago Fed. National Activity Index: The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to better gauge overall economic activity and inflationary pressure. The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data. What it means to you: This index is unique among regional Federal Reserve Bank indexes in that it is national in scope. Investors are eager to have insight into economic growth and inflation.
Dallas Fed MFG Survey: The Dallas Fed conducts this monthly survey of manufacturers in Texas regarding their operations in the state. Participants from across the state represent a variety of industries. Participants are asked whether various indicators have increased, decreased or remained unchanged. Answers cover changes over the previous month and expectations for activity six months into the future. The breakeven point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline. What it means to you: By tracking economic data such as the Dallas Fed survey, 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 more moderate growth so that it won’t lead to inflation. The Dallas Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed.
Richard Fisher (Dallas Federal Reserve President) Speaks
Durable Goods: Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. The first release, the advance, provides an early estimate of durable goods orders. About two weeks later, more complete and revised data are available in the factory orders report. The data for the previous month are usually revised a second time upon the release of the new month’s data. The Consensus Estimate is to remain the same at 3.3% but show a decline of .1% when you strip out autos. What it means to you: Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments. Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduce the prospects for inflation.
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 slight decrease from last month’s 1.3% to 1.2%.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.
S & P Case-Shiller: 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.
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 460,000 more than last month’s anemic 454,000 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.
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 a decrease from 76.2 to 75. 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.
Richmond Fed MFG Index: This survey provides a comprehensive set of indicators of business conditions within the fifth region’s manufacturing sector. The survey provides participants’ knowledge of recent changes in manufacturing activity as well as insights into expected developments in six months. The data are released the fourth Tuesday of each month. The headline index is the composite for current month activity. It is a weighted average of the shipments. . What it means to you: By tracking economic data such as the Richman Fed 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 more moderate growth so that it won’t lead to inflation. The Richmond Fed index gives a detailed look at the manufacturing sector, how busy it is and where things are headed.
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.”
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.
2 Year Note Auction
GDP: Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The consensus Estimate is for 3.1% after last month’s .4%. The price component is expected to be 2.4 (same as than last month). What it means to you: Gross domestic product is the country’s most comprehensive economic scorecard. GDP is the all-inclusive measure of economic activity. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy’s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Corporate Profits: Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits. What it means to you: Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment.
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.
Narayana Kcherlakota (Minneapolis Federal Reserve President) Speaks
Richard Fisher (Dallas Federal Reserve President) Speaks
5 Year Note Auction
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 354,000 to 345,000. 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.
Personal Income and Outlays: 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. The consensus estimate is for personal income to have risen .2% month over month (was 0% last month). Consumer spending to be up .4 month over month (was down last month -.2%). The core PCE index to be up .1% month over month (was down last month .3%). What it means to you: 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 typically is used by the bank for lending and therefore contributes to economic activity. Income is the major determinant of spending — U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
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 an increase of .1% after last month’s .3% increase. 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.
Kansas City Fed MFG Index: The monthly Survey of Manufacturers provides information on current manufacturing activity in the Tenth District. The accumulated results also help trace longer term trends. The survey monitors manufacturing plants selected according to geographic distribution, industry mix, and size. Survey results reveal changes in several indicators of manufacturing activity, including production and shipments, and identify changes in prices of raw materials and finished products. Answers cover changes over the previous month, changes over the past twelve months, and expectations for activity six months into the future. The breakeven point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline. What it means to you: Investors track economic data like the Kansas City Survey of Manufacturers to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that will not generate inflationary pressures. The survey gives a detailed look at Tenth District’s manufacturing sector, how busy it is and where it is headed.
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.
Dennis Lockhart (Atlanta Federal Reserve President) Speaks
Jerome Powell (Federal Reserve Governor) Speaks
Consumer Sentiment: The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. The consensus estimate is for a reading of 83. A slight rise after last month’s 82.7. What it means to you: Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how this index of consumer attitudes gives insight to the direction of the economy.
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 to fall to 55 after last month’s reading of 58.7. 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.
Jeffrey Lacker (Richmond Federal Reserve President) Speaks
John Williams (San Francisco Federal Reserve President) Speaks
Sandra Palatino (Cleveland Federal Reserve President) Speaks