***¶***Weekly Economic Indicators & Second Guessing Grenspan.... WEEKLY UPDATE FOR: July 7, 2001 by Bob Bose
Prior Week in Review: Financial Market Highlights:
07/06/01 06/29/01 %Change
S&P 500 1,190.59 1,225.47 -2.85%
Dow Jones 10,252.68 10,497.76 -2.34%
NASD Comp 2,004.16 2,169.31 -7.61%
Russell 2000 483.26 510.68 -5.37%
SOX Index 566.51 624.75 -9.32%
Value Line 385.27 399.13 -3.47%
MS Growth 530.66 536.92 -1.17%
MS Cyclical 536.67 543.93 -1.34%
T - Bill 3.52% 3.56% -4 BP
Long Bond 5.75% 5.74% +1 BP
Gold - Oz-Near Month $266.60 $271.30 -$4.70
Silver - Oz-Near Month $4.27 $4.33 -$.06 Economic News:
Last Week's Reports Quite Good - Beneath The Headlines
Manufacturing Sector Stabilizing - Prices Not Accelerating
No Change In Our Outlook - Second Half Recovery Very Likely
*Personal Spending rose +.5% in May
*Personal Income up +.2% - Prior month's Spending
Revised up - Income revised down - both by .01%
*May Construction Spending rose +.3%
*Nat'l Assn. of Purchasing Managers' Index for June 44.7
Modest improvement from May's 42.1 - See Below
*May Factory Orders up +2.5% - Solid Gain And Best
Increase since June 2000
*Jobless Claims rose +7,000 to 399,000 - Four Week
Moving Average fell -9,500 to 407,500
*June Labor Department Report
- Unemployment rate increased +.1% to 4.5%
- Nonfarm Payrolls fell 114,000
- Average Hourly Earnings rose +$.04/hr to $14.26
- Average Workweek unchanged at 34.3 hours
Obviously we had liked the prior week's reports, and we also
liked last week's data. On the surface, most of the reports
were pretty good, but in the details some were even better.
The very clear implication is that the manufacturing
sector is stabilizing, and even improving a bit, but off
a very sharp slowdown. We remain convinced that the worst
is behind us for both the economy and the stock market.
The most important report, Friday's Labor Department
Report on the Employment Situation for June, was actually
quite good, although the media headlines implied otherwise.
First, the unemployment rate only ticked up +.01%, less than
expected. And, from our viewpoint, there was no acceleration
in the year-over-year rate of change in average hourly
earnings. Still higher than we'd like at +4.2%, but a modest
drop from last month's +4.3%.
As is often the case, there was important information in the
revisions. For instance, May nonfarm payrolls were first
reported as a decline of -19,000. The first revision now
is for a gain of +8,000. For April the revisions were
huge - from an initial decline of -223,000 to a first revision
of a decline of -182,000 to a final decline of -165,000.
In other words, as initial estimates are replaced by solid
data, the labor market is not as bad as it appears.
The other important report, which was hardly noticed, was
a subindex of the National Purchasing Managers' Index - Orders.
For those of you that are not familiar with this type of index,
it is known as a diffusion index, where levels above 50.0
imply expansion, and levels below 50.0, contraction. For May,
the Orders subindex was 45.5. But for June Orders improved to
48.6. Clearly 48.6 is not far from 50.0, and supports the
improvement in Factory Orders for May.
Simply put, the technology sector notwithstanding, it appears
that order trends are improving in the manufacturing sector.
Granted, they are improving from reduced levels, but the point
is that they are no longer deteriorating, and that is good news,
and clearly a necessary condition for growth to resume.
And finally, both the official economic reports and trade
industry reports from the auto industry indicate that consumer
spending is being maintained at a healthy rate. The official
report of a +.5% gain for May, and an upward revision to the
April gain, were positive for second quarter growth. And, for
June the auto industry is reporting excellent sales that
annualize at a 17 million rate, and keep the industry on
track for their third or fourth best year ever. Clearly
strong auto sales are a positive not only for consumer spending,
but for the manufacturing sector as well.
Net bottom line, the economy appears to be very much on track
for the second half recovery we have been projecting for quite
some time. Our hope is that price
pressures won't build as
the recovery takes hold, but at the moment we are much more
confident about the latter than the former. Stay tuned ! Current Weekly Calendar of Economic Data:
Monday: Consumer Credit
Tuesday: Wholesale Trade
Thursday: Jobless Claims
Friday: Producer Price Index, Retail Sales