Monday, April 28, 2008
If ever there was a week that was as it relates to the economy, this is it. Economic data for almost every major component of the US economy will be released this week. In addition, the Federal Reserve Open Market Committee is meeting this week and is expected to lower rates by .25%. Here are the reports slated for release this week. Wednesday: Gross Domestic Product -- Even though the media have tolled the recession bell for the last six months, the consensus estimate from economists is for GDP to have grown by .5% for the first quarter. Not a great number, but better than the worst fears of many, and one of the main reasons the stock market has rallied in recent weeks. Wednesday will also see data on inflation, employment costs, crude oil inventories, and most importantly, the Fed's statement on their take of the strength of the economy vs. inflationary pressures. Thursday: There is enough data flowing on Thursday to push stocks up, down, and sideways . . . by noon: Auto and Truck Sales, initial unemployment claims, personal spending, core inflation excluding food and energy, construction spending, and the Institute for Supply Management Index (ISM), an index that measures the strength of manufacturing. Friday: The week will close with two of the most important indicators of economic activity: changes in non-farm payrolls (unemployment rate), and factory orders. By Friday of this week, we ought to have a much better notion of how the economy is handling the subprime crisis and the fallout in real estate. Our best guess is that the data will be a little more positive that most people now expect. We believe the recent rally in stocks has priced in our more constructive view of the economy and inflation. While consumer spending is facing lots of headwinds -- higher oil prices, higher food costs, and more uncertainty about real estate values -- the saving grace of the current economy is the US export market. It is still strong and shows few signs of slowing. Exports may well be what push GDP into positive territory. If that is the case, exports will also be the key to employment. The weak dollar has increased demand for US goods and services from all points of the globe and put a floor under employment. That is good news and we do not foresee a big reversal in the value of the dollar in the coming year, so job losses may continue to be more muted that most would suspect. Hold on to your hat. All the twists and turns of data will likely cause similar twists and turns in security prices.