Chris Rowe's Market Wrap Up July 7, 2008
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“Profit from the Trend”
Chris Rowe
Chief Investment Officer
The Trend Rider
Economic Calendar for the Week of July 07 - July 11
Thursday, July 10
8:30AM - Initial Claims
Release Details
* Importance (A-F): This release merits a C .
* Source: The Employment and Training Administration of the Department of Labor.
* Release Time: 8:30 ET each Thursday (data for week ended prior Saturday).
* Raw Data Available At: http://www.dol.gov/opa/media/press/eta/main.htm.
Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.
There are two other statistics in this report -- the number of people receiving state benefits and the insured unemployment rate; neither is watched closely by the market. Some analysts track the number of people receiving state benefits from month to month as a guide for job growth, though this series has a poor track record in predicting the monthly employment report. The insured unemployment rate changes little on a weekly basis and is never a factor for the market.
Highlights
* New claims for unemployment remain remarkably stable. The four-week moving average has been near 375,000 since early March. The slight rise above this level the past two weeks is barely significant giventhe volatility in these numbers. Labor market conditions remain weak, but nowhere near the 400,000 plus levels that were evident for almost all of 2002 and 2003. Claims are likely to stay near current levels in the weeks ahead.
Big Picture
* Unemployment claims are running at elevated levels, but well below levels experienced in the past two recessions. The four-week moving average has been near 375,000 since early March. This steady trend contrasts with the sharp increase in claims that occurred ahead of the 2001 recession, when claims spiked to over 400,000 per week by mid-April after the start of recession in January. The current trend in claims is consistent with moderate declines in payrolls, but not at the rate of 150,000 per month or more seen in true recessions.
Friday, July 11
8:30AM - International Trade
Release Details
* Importance (A-F): This release merits a C .
* Source: The Census Bureau and the Bureau of Economic Analysis of the Department of Commerce.
* Release Time: 8:30 ET around the 20th of the month (data for two months prior).
* Raw Data Available At: http://www.census.gov/foreign-trade/www/press.html.
The trade report is most widely watched for trends in the overall trade balance. But trends in both exports and imports of goods and services bear watching as well. The export data in particular are important to watch for indications that a strengthening competitive position at home and/or strengthening economies overseas are boosting U.S. growth. Imports provide an indication of domestic demand, but given the severe lag of this report relative to other consumption indicators, it is not particularly valuable for this purpose.
The volatility in the monthly trade balance can play an important role in GDP forecasts. Net exports are a relatively volatile component of GDP, and the trade report provides the only early clues to the net export performance each quarter.
Big Picture
* The trade data get less market attention than they deserve. Exports are booming, and the monthly data are an important part of overall GDP. In fact, exports are now over three times as large as the housing component in GDP. The improvement in the trade balance, particularly in the real (price adjusted) trade balance, has provided a significant boost to real GDP growth the past year. Further improvement in the trade balance over the year ahead will provide important support to the economy. Note: higher oil prices worsen the trade balance and GDP deflator, but do not directly impact the real trade balance or real GDP.
10:00AM - University of Michigan Consumer Sentiment Index
Release Details
* Importance (A-F): This release merits a B-.
* Source: The University of Michigan.
* Release Time: Preliminary: 10:00 ET on the second Friday of the month (data for current month); Final: 10:00 ET on the fourth Friday of the month (data for current month).
The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes - expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
