The Tycoon Report

Insider Buys and Sells: Weekly Wrap-Up

Monday, February 23, 2009 | Tycoon Staff




Economic Calendar for the Week of February 23 - February 27

Tuesday, February 24

10:00- 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 Conference Board's Consumer Confidence report hit a new record low of 37.7 in January.  That was down from an upwardly revised reading of 38.6 (prior 38.0) and slightly below the consensus estimate of 39.0.  However, it is down sharply from the 87.3 reading seen a year ago.
    * There were declines in both the Present Situations (from 30.2 to 29.9) and Expectations (from 44.2 to 43.0) indexes.
    * There was an increase in car-buying plans within six months, but there wasn't any pickup in plans to buy a home in the next six months or any major appliances.

Key Factors

    * The January confidence report was telling since it didn't appear to convey much change in consumer attitudes despite all of the inauguration hoopla.  That's probably because respondents receive the questionnaires soon after the release of the employment report.
    * The decline in confidence underscores the battered psyche of the consumer in the face of increasing reports about the rising unemployment rate and continued job cut announcements.

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.

Thursday, February 26

08:30- Durable Goods Orders

Release Details

    * Importance (A-F): This release merits a B.
    * Source: The Census Bureau of the Department of Commerce.
    * Release Time: 8:30 ET around the 26th of the month (data for month prior).
    * Raw Data Available At: http://www.census.gov/ftp/pub/indicator/www/m3/index.htm.

The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.

Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers' durable equipment (PDE) -- the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.

Highlights

    * The decline of 2.6% for orders of durable goods in December reflects the continuing overall pullback in business investment.  Excluding transportation, orders were down 3.6%.
    * This was the fifth consecutive monthly decline for durables orders, and followed a 3.7% November decline.
    * The declines were widespread, although transportation orders posted what will probably be a temporary increase of 0.6% and defense orders rose 16.4%.
    * The widely watched core nondefense capital goods orders excluding aircraft fell 2.8%.

Key Factors

    * The recent weakness in orders will hamper industrial production in early 2009. Further declines in orders are likely in the immediate months ahead.

Big Picture

    * Durable goods orders are trending sharply lower.  Durable goods orders, and total factory orders (which include nondurables orders), had shown surprising strength given overall economic conditions.  Now, however, the widespread broadcast of an economic crisis has manufacturing firms pulling back.  In addition, the weak dollar has turned stronger.  The weak dollar has been a huge boost to US exports and durable goods orders.  This impact will fade over early 2009.  The manufacturing sector, which had been extremely resilient, will now probably head into a sectoral recession.

Friday, February 27

08:30- GDP: Gross Domestic Product

Release Details

    * Importance (A-F): This release merits a B.
    * Source: Bureau of Economic Analysis, U.S. Department of Commerce.
    * Release Time: Third or fourth week of the month at 8:30 ET for the prior quarter, with subsequent revisions released in the second and third months of the quarter.
    * Raw Data Available At: http://www.bea.doc.gov/bea/dn1.htm.

Gross Domestic Product (GDP) is the the broadest measure of economic activity. Annualized quarterly percent changes in GDP reflect the growth rate of total economic output. The figures can be quite volatile from quarter to quarter. Inventory and net export swings in particular can produce significant volatility in GDP. The final sales figure, which excludes inventories, can sometimes be helpful in identifying underlying growth trends as inventories represent unsold goods, and a large inventory increase will boost GDP but might be indicative of weakness rather than strength. The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totalling roughly 2/3rds of GDP.

In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each component. Though the consumer price index is a more closely watched inflation indicator, the GDP deflator is another key inflation measure. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so that changes in consumption patterns or the introduction of new goods and services will be reflected in the deflator.

With both GDP and the deflator, the market tends to focus on the quarter/quarter change. Year/year changes are also cited frequently, though they do not provide the most timely indications of economic activity or inflation. The bond market often reacts to GDP, though the price moves are typically small, as much of the GDP data is easily predicted using monthly economic releases such as personal consumption, durable goods shipments, construction spending, international trade, and inventories.

Quarterly GDP reports are broken down into three announcements: advance, preliminary, and final. After the final revision, GDP is not revised again until the annual benchmark revisions each July. These revisions can be quite large and usually affect the past five years of data.

Highlights

    * Inventories rose slightly in the fourth quarter. That compared to a large drop in the third quarter, so the contribution to GDP from inventories was a much stronger-than-expected 1.3%. That led to a smaller-than-expected drop in overall GDP of 3.8%, compared to an expected drop of about 5.5%.
    * Personal consumption expenditures (consumer spending) dropped at a 3.5% annual rate and sliced 2.5% off GDP.
    * Nonresidential investment plunged at a 19% annual rate and residential investment (housing) dropped at a 28% annual rate.
    * Government spending did manage a modest increase.
    * Net exports added 0.1% to GDP rather than taking a bit off.
    * Raw Data Available At: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Key Factors

    * Overall, the trends in the key components -- business investment, consumer spending, and housing -- remain poor.
    * The inventory boost is not likely to continue into the first quarter, and net exports could well turn negative. That sets the stage for a similar decline at a rate of 3% to 4% for first quarter real GDP.

Big Picture

    * The trends in the economy were moderately poor through the summer.  Then, in September, the trends tanked along with the stock market.  Some tech firms noted a significant dropoff in demand right after the mini-panic of mid-September.  These worsening trends are apparent in the fourth quarter GDP numbers, and will remain so into 2009 as well.  Consumer spending is weakening and will only take a significant turn for the better once the declines in payroll moderate.  Business investment is also in retreat.  The stronger dollar is now weakening export demand as well.  A lot now depends on overall psychology and perceptions of how well the government responds to the financial market and other problems such as exist in the auto industry.  There is not yet much concern about the huge looming federal deficits, but that will probably become a topic as the next fiscal stimulus package is enacted in 2009.  The economic outlook is now as much a function of government action as it is of the traditional correlations and trends among macro-economic variables.

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.

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.

10:00- 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.

Big Picture

    * Sentiment readings are a reflection of a variety of events rather than an accurate tool for forecasting consumer spending.  Gas prices and political events can have an outsized impact on sentiment.  In general, these data are of very little economic value.