Growing Economy in April

On April 24th, 2012, posted in: Economic News, Newsletter by

Most of Aprils’ economic data evidences a growing economy. The most notable exception was existing homes sales which are still struggling in parts of the country. Given the political environment and the upcoming elections, people are looking for any type of good news to encourage them. The optimistic consumers are looking for any reason to spend. Disposable income has increased 3.2% over the last 12 months, driving consumption up 4.1%.  So the upbeat economic news seems to be seeping over into other parts of the economy.

Some examples:

  1. Retail sales increased in March (+0.8%). The gains were across the spectrum, including electronics, appliances, and clothing.
  2. Another indicator business is on the upswing is the increase in inventories.  They rose +0.6% in February.
  3. The Conference Board’s index of leading indicators rose +0.3% in March. This was the sixth straight month of gains.
  4. Industrial production although flat in March, gained +10.4% for the 1Q 2012.
  5. New orders for durable goods rose 2.2% in February. This represented broad gains in many categories. These are usually a precursor for home building. The Richmond Fed index, which measures manufacturing in the Mid-Atlantic States declined 7% in March after posting +20 in February.
  6. The ISM manufacturing index rose to 53.4 in March. Anything above 50 is an expanding economy. This was above the consensus expectation of 53. This was the 32nd consecutive month the index has been above 50. Think double dip recession when you see this number, its nowhere in sight.
  7. The employment index rose to 56.1, the highest level since June 2011, showing a positive growth in jobs.

Despite these positive signs of economic strength, the struggling housing market remained stagnant.

  • New home construction declined 5.8% in March. That equates to an annual rate of 654,000 units. In 2006 the annual rate was more than two million units.
  • Existing home sales fell -2.6% in March. Sales are still up 5.2% versus 2011. This was the second consecutive monthly decline. But despite the drop,  the median existing-home price ($163,800) increased  +2.5% compared to a year ago. Average prices are up 2%. Prices in Phoenix are up 17% in the past three months.

ALL TO SAY: The economy is continuing a slow recovery and become more self-sustaining, barring any unforeseen calamities, like a bankruptcy of Greece, Spain, Portugal or Italy. It might be another terrorist attack on our financial system that sends us into a tail spin.  This recovery is slower than anyone would like to see; and too slow to have any significant impact on jobs and unemployment. Some economists say it could take 5 years to get back the lost jobs. Businesses are still holding lots of cash. Many are waiting to see the outcome of the presidential election, tax reforms, oil and gas prices, etc. With corporate profits at or near all-time highs, where is the incentive to take any risks and rock the boat?  So take a seat and join the wait. It could be awhile.

ABOUT THE MARKETS

The markets were mixed during the last week, and may have been pricing in some upcoming events. Still in positive territory, The Dow [ +6.64%] and S & P 500 [ +9.62%] gained, while the NASDAQ[ +15.17%] edged a little lower during the after Easter trading sessions. Past performance is no guarantee of future results. Indexes are not available for direct investment.

How do you explain the last few days of turmoil? Apple shares fell in anticipation of 1Q earnings report due out soon. There is much speculation about the upward slope of company sales. Evidently confidence is waning as Apple fell about 11% from their twelve-month high of $644.

Broader markets reacted strongly on upbeat earnings reports. So far, nearly 75% of the reporting companies posted better than expected earnings. Assuming that continues, the market is likely to move even higher.

Other significant events include:

  • Sunday’s French election, which saw President Sarkozy drop to second place in the first round of their election process.
  • The Fed’s FOMC Committee will meet. It is likely short-term rates will stay unchanged. Many are watching to see if they will propose a “QE3” stimulus package.
  • An update on 1Q 2012 GDP should be out soon.

These events, and a general concern markets have already topped for the year may explain why foreign capital inflows dropped in February. January saw $102.4 billion come into the US markets. But February fell 90% to only $10.1 billion. Unless there is another European meltdown caused by political maneuvers in Europe or continued slowing growth in China, it is likely we will not see high demand for U. S. Treasury securities at these low rates.

Interest rates and mortgage rates stayed stagnant as they wait for the GDP Report and Fed meeting.

The U. S. dollar continues to hover around $1.30 compared to the Euro. The Europeans have their eye on Sarkozy and the French elections. To the plus, the IMF pledged additional capital to prop up the weaker economies and the entire European banking system.

We saw oil prices remain unchanged and gasoline prices actually fell for the first time in several weeks. Oil is near the price at the beginning of the year while gasoline prices are still significantly higher. Where is the Dept or Justice when you need them?

SOME FINANCIAL INFO SITES

www.bloomberg.com – loaded with data, analysis and articles (including videos) on a myriad of business topics.

A FINANCIAL FACT OF THE WEEK

According to The New York Times, debt obligations of consumers, like mortgage and credit card debt has fallen to 10.9% of disposable income. This compared to about 14% in 2007.This is the lowest rate since 1994

Enjoy a great week of investing. You have earned it.

 

This information is compiled by Guy Baker from an assortment of news feeds including First Trust, Yahoo Finance, Bloomburg and others. This information is intended to be informational only. This newsletter contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Investing involves risk, including the potential for loss of principal. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

 

 

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