Dismal Econometrics 2/28/2008
Weekly Changes
DOW 12582.18 297.88 2.42%
S&P500 1367.68 25.15 1.87%
NASDAQ 2331.57 31.79 1.38%
It’s been a busy week for economists so far and the docket is full for tomorrow. Actually, disappointing data has been rolling in throughout February and this is on top of disturbing readings in January. Here’s the skinny:
Housing is still weak though with a little lipstick you could say that it’s getting less bad. The NAHB Housing Market Index (HMI) ticked up a point to 20 last week and conceivably this leading indicator has bottomed. However, both Existing and New Home Sales declined further this week. Foreclosures are up and despite the 225bp in Fed rate cuts since last summer, mortgage rates have not come down. They have actually ticked up recently. Although, the future looks a little better, the present situation for housing looks grim and it will likely be several quarters before housing recovers.
Inflation is up, further putting the Fed’s rate-cutting efforts to stimulate the economy in jeopardy of fanning inflation. Most concerning was the large jump in Producer Prices (PPI) that suggests elevated energy prices are now managing to seep into the costs of other goods. PPI increased 7.7% year-over-year; this was the greatest increase since October 1981. Consumer Prices (CPI) continue to rise, but Chairman Bernanke, in his most recent testimony to Congress this week, has expressed increased concern about economic growth and that the slowdown will keep inflation at bay.
Job creation was negative for January and the Unemployment Rate, though down to 4.9% from 5.0% from last month, remains in an uptrend. Next week’s February Employment release will be important. Weekly Jobless Claims were up today. It appears to becoming increasingly difficult for the Fed to fulfill its mandate to maintain price stability and maximum employment.
In addition to weak manufacturing readings from the ISM Index, the Philadelphia Fed Survey and the NY Empire State Manufacturing Survey; the ISM Non-Manufacturing Index contracted in January. The ISM Non-MFG is arguably more important as it represents the service sector which accounts for approximately 80% of the U.S. Economy.
Consumer Confidence has also dipped to worrisome levels. The Conference Board’s Consumer Confidence Index fell to 75, its lowest level since March 2003. The steepness of its decline, and this level, has been associated with recession every time it has happened since the index began in 1967.
Today’s “revised” GDP number was not revised at all and continues to indicate an economy on notice. Tomorrow’s Personal Income release from the government contains Bernanke’s favorite inflation gage, the PCE (Personal consumption expenditures) deflator. We also have the Chicago Purchasing Manager’s Index (weak recently), University of Michigan Consumer Sentiment Survey (practically in freefall) and Agricultural Prices (trending higher).
The data continues to point to an economy headed toward recession. For the April issue, out in two weeks, we are preparing a Proving Grounds that updates the situation with the Four Horseman of the Economy, the stock market, inflation, the consumer and jobs. We will be analyzing the relationship between the economy, the stock market and the Presidential Election. For the time being the stock market should be handled with kid gloves, limiting purchases, holding cash and employing some downside protection.
STANDARD TRADING GUIDELINES!
BUY LIMITS ARE GOOD TILL CANCELLED.
ALL STOPS EFFECTIVE ONLY WHEN THE STOCK CLOSES BELOW THE STOP PRICE.
ALWAYS SELL HALF ON A DOUBLE.
Please Trade Carefully.
Jeffrey A. Hirsch, Editor
J. Taylor Brown, Director of Research
Stock Trader's Almanac® Almanac Investor Copyright © 2008 Wiley Periodicals, Inc., A Wiley Company.
111 River Street, Hoboken, NJ 07030 Tel: 800-762-2974
Available only to Stock Trader's Almanac® Almanac Investor subscribers. http://www.stocktradersalmanac.com
Pursuant to the provisions of Rule 206 (4) of the Investment Advisers Act of 1940, readers should recognize that not all recommendations made in the future will be profitable or will equal the performance of any recommendations referred to in this Email issue. The information presented in this Almanac Investor has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of the editor, its employees, or affiliated companies may, in some instances, include securities mentioned in this Almanac Investor Alert.
Additional disclosures can be found at www.stocktradersalmanac.com.
