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Insider Buys and Sells: Weekly Wrap-Up

Monday, March 30, 2009 | Tycoon Staff




Economic Calendar for the Week of March 30 - April 03

Tuesday, March 31

09:00 - Conference Board Consumer Confidence

Release Details

    * Importance (A-F): This release merits a B-.
    * Source: The Conference Board.
    * Release Time: 10:00 ET on the last Tuesday of the month (data for current month).
    * Raw Data Available At: http://www.tcb-indicators.org/.

The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant. The index consists of two subindexes - consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.

Highlights

    * The February consumer confidence reading provided by the Conference Board dropped to a record low 25.0 from a downwardly revised reading of 37.4 (from 37.7) in January.  The February number was well below the consensus estimate of 35.0 and the year-ago reading of 76.4.
    * It was little surprise to see a drop in the present situation index, which fell to 21.2 from 29.7, but what was a bit startling was the even larger drop in the expectations index, which fell to 27.5 from 42.5.
    * More respondents expect to see their income decline in the next six months (23.8 vs. 18.4), fewer plan to buy an automobile (4.7 vs. 5.3) or a home (2.3 vs. 2.5), and more think business conditions will be worse (40.5 vs. 31.1) and that fewer jobs will be available (47.3 vs. 36.9).

Key Factors

    * With the survey being conducted in the midst of all of the talk about the stimulus efforts being undertaken by the government, this report would seem to suggest that the stimulus hasn't resonated with the public as a quick solution for what ails the economy.

Big Picture

    * Consumer sentiment indices get way too much attention.  The simple fact is that sentiment does not correlate with consumer spending and thus has little predictive value.  Consumer spending correlates more closely with income.  Sentiment tends to reflect well known factors such as unemployment rates and gas prices more than it predicts future spending patterns.

09:45 - Chicago PMI

Release Details

    * Importance (A-F): The Chicago PMI merits a B.
    * Source: Chicago Purchasing Managers Association.
    * Release Time: Last business day of the month at 10 ET for the current month.

In Brief

There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The New York and Philadelphia Fed's surveys are the first each month followed by the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the ISM and are of little value. The purchasing managers' reports are measured like the national ISM -- 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the New York, Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark. These surveys can be of some help in forecasting the national ISM.

Highlights

    * The business barometer for the Chicago Purchasing Managers Index rose to 34.2 in February from 33.3 in January.  That was above the consensus estimate of 33.0, but is still below the 6-month average of 38.4.
    * The component indexes contained some surprises, some good and some bad.  Production picked up to 34.7 from 29.7, new orders held steady at 30.6 versus 30.7 the prior month, order backlogs jumped to 29.3 from 26.5, and inventories dropped to 33.0 from 38.0.  Employment, however, fell to 26.2 from 34.8.

Key Factors

    * The overall report fits more in the moral victory category since a number below 50 still connotes contraction.  Still, stabilization is taken as a hopeful sign.
    * The 34.2 reading for February is in line with the average of the reading for the previous three months (33.3, 35.1 and 33.6) and suggests the rate of deterioration for this particular regional manufacturing survey has indeed slowed.

Big Picture

    * The Chicago PMI has little overal economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.

Wednesday, April 1

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 February ISM Index was at 35.8% versus 35.6% in January and the consensus estimate of 34.0%.  A number below 50, however, still points to a manufacturing sector in contraction.  The slight month-to-month improvement simply indicates that the rate of contraction has slowed.
    * There was a pickup in the production index (to 36.3% from 32.1%) while new orders were fairly steady at 33.1%.
    * The backlog of orders increased to 31.0% from 29.5% while supplier deliveries jumped to 46.7% from 45.3%.  Inventories dipped to 37.0% from 37.5%; employment fell to 26.1% from 29.9%; imports dropped to 32.0% from 36.5% while new export orders and prices paid were flat at 37.5% and 29.0%, respectively.

Key Factors

    * The telling admission in this survey is that none of the 18 manufacturing industries reported growth and "...respondents appear generally pessimistic about recovery in 2009.  Some express hope that the stimulus package will help their industry."
    * Although better than what the market was expecting, the February ISM Index didn't do anything to dispel the downtrodden view held by Warren Buffet that the economy will be in shambles in 2009.

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.

Friday, April 3

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

    * The February employment report brought the bad news that was expected -- literally. The consensus estimate called for a decline of -650K positions and the reported number ended up -651K. The prior month's nonfarm payrolls decline was revised to -655K from -598K.
    * The unemployment rate, however, surprised in a negative manner as it jumped to 8.1% (from 7.6%), which was above the 7.9% consensus forecast.
    * Hourly earnings, up 0.2%, and the average workweek, at 33.3 hours, were in-line with estimates.
    * Payroll declines were seen in all areas, with the exception of education and health services ( 26K) and government ( 9K).
    * The manufacturing workweek fell another 0.2 to 39.6 hours, which is a negative portent for industrial production.
    * The number of long-term unemployed increased 270K to 2.9 mln; the number of persons who worked part-time for economic reasons jumped 787K to 8.6 mln; and the number of discouraged workers was up 335K from a year-ago. Each of these measures underscores the difficulty in finding a new job in the current environment.

Key Factors

    * One bright spot is that average hourly earnings were up 3.6% from a year-ago, which will aid in the purchasing power for employed individuals.
    * Still, the rising unemployment rate and the high level of nonfarm payroll declines, which were at their highest in February since Oct. 1949, are expected to remain deterrents for consumer spending which drives GDP.

Big Picture

    * Employment conditions have worsened significantly in recent months.  Through August 2008, 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.