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  • Stocks Up On Mixed Economic Data By WSS Research Desk 0 comments
    Mar 28, 2013 1:55 PM

    By Carlos Guillen

    Despite lack luster economic results posted earlier today, equity markets are making modest moves to the upside with the Dow Jones Industrial Average gaining over 30 points so far into the trading session.

    Quite concerning today was that employment data showed a reversal in the favorable trend of those filing for unemployment checks. According to the Department of Labor, initial claims during the week ended March 23 totaled 357,000, increasing from the 341,000 revised figure reported for the prior week and landing above the Street's estimate of 340,000. The fact that the number jumped above 350,000 was also discouraging. The initial claims' four-week moving average was 343,000, increasing from the prior week's average of 340,750, also putting an end to four consecutive weeks of declines. We should note that the report contained annual benchmark revisions to the series and the model used by the government to iron out seasonal fluctuations.

    (click to enlarge)

    Perhaps a bit positive today was that gross domestic product (GDP) came in slightly better than expected, although growth is still sluggish. According to the Bureau of Economic Analysis, real gross domestic product during the fourth quarter of 2012 increased quarter-over-quarter by 0.4 percent (annualized), a bit lower than the Street's consensus estimate calling for a 0.6 percent quarter-over-quarter rise and higher than the prior estimate calling for a 0.1 percent gain; however, the growth posted was still much lower than the 3.1 percent posted for the third quarter. On the positive side, it was very encouraging to see that consumption increased 1.8 percent, making 12 quarters of consistent growth. However, a sharp drop in government spending and in inventory additions more than negated the positive contribution from consumer spending.

    In fact, consumer spending contributed 1.28 percentage points to total GDP, while government spending and inventory additions took away 1.41 and 1.52 percentage points, respectively. While this result is rather backward looking and a lagging indicator, it is still a disappointment to see debilitating economic growth.

    (click to enlarge)

    Perhaps serving to strengthen the perception of slowing U.S. economic growth, data from ISM-Chicago showed that the region was expanding at a slower rate than expected. March Chicago PMI dropped to 52.4 from the 56.8 level reached in the prior month, landing below the Street's consensus of 56.5. It should be noted that levels above 50 signify growth, so the result means that the region's manufacturing industry is in its fourth month of expansion but at a slower pace. So far, overall economic indicators have been rather mixed; a broader economic measure of manufacturing comes out on Monday, and this should shed more light on the degree of manufacturing growth in the U.S. economy.

    At the moment equity markets are running smoothly with some bits of indication that it wants to go higher, quite amazing indeed.

    Enigmatic Economic Data Supportive of Market Highs?
    By David Urani

    So here we are with the Dow climbing into fresh new highs, and the S&P 500 just today breaking past its all-time closing high of 1,565 from 2007. On that note, it's looking like that all-time high might be acting as resistance for the market today.

    (click to enlarge)

    That being said, I'm more inclined to focus on fundamentals and from what I've seen this week there hasn't been much evidence to support further gains in the market in terms of economic data.

    There were a couple of soft results from the housing sector, where both new and pending home sales dipped from January to February (both were below consensus as well). That being said there were reasons to suggest that those data points weren't as bad as they looked; for new home sales there had been an unusually large jump in January, and for pending homes a lack of inventory is apparently still holding back sales. Both results were still above December's levels. Nevertheless, there wasn't really a reason to be bullish on the housing data.

    Durable goods orders were up 5.7% month to month due to a big jump in transportation, which economists often like to exclude because of its volatility (aircraft jumped 95.3%). Excluding transportation, durable goods orders were down 0.5% versus expectations of a 0.7% increase. We will say though that aside from the aircraft volatility auto orders were up 3.8%, and nondefense capital goods orders were up 10%.

    We also got a bum reading on consumer confidence from the Conference Board that sort of came out of nowhere. That index dropped all the way to 59.7 from 69.6 (consensus 67.5), reversing a gain in February. The report suggested that it was a continued melancholy mood after payroll tax increases, gas prices and outlook on sequestration.

    Then there were initial jobless claims, which increased to 357k from 340k week to week, above the 340k consensus. An increase is never great to see, although the four-week average trend in the data still looks okay and the present levels of jobless claims continue to support decent job market performance.

    We got a couple of regional manufacturing figures from Dallas and Chicago. The Dallas Fed index was up to 7.4 from 2.2 (consensus 3.4). However, the Chicago PMI index was down to 52.4 from 56.8 (consensus 56.1); on the positive side at least this index remained in positive territory (readings above 50 indicate growth).

    The third and final reading on 4Q GDP was at 0.4%. That was below expectations of 0.6%, although above the preliminary estimate of 0.1%. I maintain that the GDP data is backward looking and usually doesn't move the market much. Nevertheless, it's good to see that economic growth was a little more than previously thought, although the Street already knew this in advance.

    So as you can see, much of the economic data this week had negatives and positives depending on how you looked at it, although most of it came in below expectations. Consequentially, I'd call it mostly mixed. Yet at the same time with the broad markets pushing to record highs I'm feeling a little bit cautious given that the data hasn't necessarily been convincing.


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