The Tycoon Report

Insider Buys and Sells: Weekly Wrap-Up

Monday, March 2, 2009 | Tycoon Staff




Economic Calendar for the Week of March 02 - March 06

Monday, March 2

10:00 - ISM: Institute for Supply Management

formerly NAPM: National Association of Purchasing Managers

Release Details

    * Importance (A-F): This release merits an A-.
    * Source: Institute for Supply Management
    * Release Time: 10:00 ET on the first business day of the month for the prior month.
    * Raw Data Available At: http://www.ism.ws/.

In Brief

The ISM report is a national survey of purchasing managers which covers such indicators as new orders, production, employment, inventories, delivery times, prices, export orders, and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.

The total index is calculated based on a weighted average of the following five sub-indexes, with weights in parentheses: new orders (30%), production (25%), employment (20%), deliveries (15%), and inventories (10%).

The ISM is one of the first comprehensive economic releases of the month, typically preceding the employment report. Though it covers only the manufacturing sector, it can often provide accurate hints regarding the tone of subsequent releases. During periods of inflation concerns, the prices paid and vendor deliveries indexes often determine the bond market's reaction to the report.

Highlights

    * The January ISM Index jumped to 35.6% versus 32.9% in the prior month.
    * The new orders index picked up to 33.2% (from 23.1%), the production index improved to 32.1% (from 26.3%), the order backlog index increased to 29.5% (from 23.0%), the prices paid index increased to 29.0% (from 18.0%), and the employment index held steady at 29.9%.  The inventories index slipped to 37.5% from 39.6%.

Key Factors

    * A reading of 35.6% is still consistent with a contracting manufacturing sector (50.0% is the dividing line).  What the January number says is that the rate of contraction isn't as fast as was reported in December.

Big Picture

    * This is a highly overrated index.  It is merely a survey of purchasing managers.  It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse.  It does not weight for size of the firm, or for the degree of better/worse.  It can therefore underestimate conditions if there is a great deal of strength in a few firms.  The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle.  It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.

Wednesday, March 4

10:00 - Non-Manufacturing ISM: Institute for Supply Management

formerly: Non-Manufacturing NAPM (National Association of Purchasing Managers)

Release Details

    * Importance (A-F): This release merits an improved B-.
    * Source: Institute for Supply Management
    * Release Time: 10:00 ET on the third business day of the month for the prior month.
    * Raw Data Available At: http://www.napm.org.

In Brief

The non-manufacturing ISM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.

The index should be far more indicative of the broader economy given its inclusion of service-producing as well as good-producing sectors outside of manufacturing. However, the short history of the index dates to only July 1997 and doesn't provide the insight of a longer period inclusive of varied economic climates. The seasonal adjustment of the index didn't begin until January 2001 with only 3 of the 9 components seasonally adjusted as of April 2001. The lack of historical data and lack of a tight correlation to the non-manufacturing economy leaves the relatively poor "B-" rating compared to the "A-" rating of the well-respected manufacturing ISM index.

Highlights

    * The ISM Services index for January turned out better than expected, rising to 42.9% from 40.1% in December.
    * There was an uptick in the orders index to 41.6% (from 38.9%) and the prices index to 42.5% (from 36.1%).  Employment held fairly steady at 34.4% while the backlogs index dipped to 37.5% (from 42.5%) and the inventory index dropped to 41.5% (from 49.0%).
    * The improvement in the services index was consistent with the improvement seen in the more influential manufacturing index.

Key Factors

    * A reading below 50% still points to contraction in the services sector.  The uptick to 42.9% in January simply suggests the rate of deterioration has slowed.

Big Picture

    * The ISM surveys are highly overrated.  They are simply surveys, and are unweighted by company size and the components are equally weighted.  There have been many false reads from both the manufacturing and non-manufacturing surveys.  Nevertheless, the October downturn in the survey undoubtedly reflects worsening busienss conditions that are likely to be reflected in the survey for at least several months.

Friday, March 6

08:30 - The Employment Report

Release Details

    * Importance (A-F): This release merits an A.
    * Source: Bureau of Labor Statistics, U.S. Department of Labor.
    * Release Time: First Friday of the month at 8:30 ET for the prior month
    * Raw Data Available At: http://stats.bls.gov/news.release/empsit.toc.htm.

In Brief

The employment report is actually two separate reports which are the results of two separate surveys. The household survey is a survey of roughly 60,000 households. This survey produces the unemployment rate. The establishment survey is a survey of 375,000 businesses. This survey produces the nonfarm payrolls, average workweek, and average hourly earnings figures, to name a few. Both surveys cover the payroll period which includes the 12th of each month.

The reports both measure employment levels, just from different angles. Due to the vastly different size of the survey samples (the establishment survey not only surveys more businesses, but each business employs many individuals), the measures of employment may differ markedly from month to month. The household survey is used only for the unemployment measure - the market focusses primarily on the more comprehensive establishment survey. Together, these two surveys make up the employment report, the most timely and broad indicator of economic activity released each month.

Total payrolls are broken down into sectors such as manufacturing, mining, construction, services, and government. The markets follows these components closely as indicators of the trends in sectors of the economy; the manufacturing sector is watched the most closely as it often leads the business cycle. The data also include breakdowns of hours worked, overtime, and average hourly earnings.

The average workweek (also known as hours worked) is important for two reasons. First, it is a critical determinant of such monthly indicators as industrial production and personal income. Second, it is considered a useful indicator of labor market conditions: a rising workweek early in the business cycle may be the first indication that employers are preparing to boost their payrolls, while late in the cycle a rising workweek may indicate that employers are having difficulty finding qualified applicants for open positions. Average earnings are closely followed as an indicator of potential inflation. Like the price of any good or service, the price of labor reacts to an overly accommodative monetary policy. If the price of labor is rising sharply, it may be an indication that too much money is chasing too few goods, or in this case employees.

Highlights

    * Nonfarm payrolls declined 598,000 in January. The December payrolls number was revised down to -577,000 (from -524,000), bringing the cumulative job loss in the last three months alone to 1.77 million.
    * The unemployment rate jumped to 7.6% from 7.2%. Hourly earnings increased 0.3%.  In a weak portent for future output, the average workweek remained at 33.3 hours while the manufacturing workweek dipped a tenth to 39.8 hours.
    * The number of discouraged workers (those who don't think they can find a job) rose to 734,000 from 642,000 in the prior month while the number of involuntary part-time workers held pretty steady at 7.8 million, but that is up 3.1 million over the last 12 months.
    * The hiring of temporary workers dipped 3.7% to 1.98 million which, along with the average workweek, is an indication that there will be continued weakness in full-time hiring.

Key Factors

    * From an economic standpoint, the January employment report is littered with discouraging news. Employment, of course, is a lagging indicator, but with the continued job cut announcements being heard in real-time from major companies, the labor market isn't providing any silver lining when thinking of the economy's recovery potential in the near-term.

Big Picture

    * Employment conditions have worsened significantly in recent months.  Through August, payroll declines were moderate, and not at recessionary levels.  The September and October declines were much larger and established a new trend.  Employment conditions are not likely to improve for quite a few months, particularly as employment picks up only after an increase in overall demand.