Week ahead: Summer week could reveal clues for economy

During a slow summer week when US stock indexes declined, there was actually evidence of a few positive trends that may have gone unnoticed and could portend economic, though not necessarily stock market, improvement in the week ahead. The July ISM non-manufacturing index, along with its sibling, the manufacturing index released the week prior, show that economic growth is likely to accelerate in the third quarter from the anemic 1.7 percent annual rate seen in the second quarter. This week, regional manufacturing reports may confirm that the spring slowdown has reversed course.

There may also be better news on that first GDP reading. June’s international trade deficit narrowed to a near four-year low in June, which is faster than the Bureau of Economic Advisors assumed for its initial estimate of second-quarter GDP. The trade data indicate that growth could be revised from 1.7 percent to over 2 percent, when the next estimate is released later this month.

Two reports last week underscored that layoffs are tapering off: (1) The Labor Department said there were 2.99 job seekers for every open job in June, the first time the ratio has dropped below three since October 2008 and (2) The four-week-moving average of weekly jobless claims fell to the lowest level since November 2007.

The next step in the recovery would be a broad-based uptick in hiring, which has yet to materialize with breadth and consistency. Until job creation picks up and wages increase more substantially, chances are that retail sales and confidence, both of which will be released this week, will show good, not great progress. Earnings this week from many of the nation’s largest retailers may also provide more clues about how the second half of the year is shaping up and whether or not the back to school season is really shaping up to be as bad as everyone fears.

MARKETS: With US stocks up 18-20 percent this year and scant data set to be released prior to Labor Day, expect a few pokey weeks of trading ahead. Not that we should complain, because as Shakespeare wrote, “summer's lease hath all too short a date” (Sonnet 18).

• DJIA: 15,425, down 1.5% on week, up 17.7% on year (snaps 6 weeks of gains)
• S&P 500: 1691, down 1% on week, up 18.6% on year
• NASDAQ: 3660, down 0.8% on week, up 21.2% on year
• 10-Year Treasury yield: 2.58% (from 2.60% a week ago)
• Sep Crude Oil: $ 105.97, down 0.9% on week
• Dec Gold: $ 1312.20, up 0.2% on week
• AAA Nat'l average price for gallon of regular Gas: $3.56

THE WEEK AHEAD:

Mon 8/12:

2:00 Treasury Budget

Tues 8/13:

8:30 Retail Sales

8:30 Import and Export Prices

10:00 Business Inventories

Weds 8/14:

Cisco Systems, Macy’s

8:30 PPI

Thurs 8/15:

Wal-Mart, Kohl's, Nordstrom

8:30 Weekly Jobless Claims

8:30 CPI

8:30 Empire State Mfg Survey

8:30 Philadelphia Fed Survey

9:15 Industrial Production

10:00 NAHB Home Builder Confidence

Fri 8/16:

8:30 Housing Starts

8:30 Productivity and Costs

9:55 Consumer Sentiment 

Week ahead: Econo-palooza (Income, Spending, Housing, Jobs, the Fed!)

The first reading on Q1 GDP was a mixed message . Sure the headline seemed good: the U.S. economy grew at an annualized pace of 2.5 percent in the first quarter, which was up strongly from the fourth quarter’s meager reading of 0.4 percent and better than 2012’s pace of 2.2 percent. But the result was less than the 3 percent annualized pace that economists were expecting. The GDP report was just a warm-up for this week’s “Econo-palooza,” starting with a report on monthly Personal Income and Spending. Considering that consumers did the heavy lifting on the GDP (consumption rose at a 3.2 percent annual pace in Q1), fears over a pullback in spending may have been overblown. Perhaps the increase in payroll taxes was offset by a drop in energy prices, but the GDP report did note that there was 5.3 percent annualized drop in real disposable incomes.

Also this week, there will also be readings on: house prices; manufacturing; car sales; and monthly jobs, the big daddy of them all. After last month’s lousy employment report (just 88,000 jobs were created in March), economists estimate that April will bump up to 160,000 new jobs and that the unemployment rate will remain at 7.6 percent.

In between all of the noise, the Federal Reserve will convene its Open Market Committee meeting. The central bankers have been keeping a close eye on all of the economic indicators, all of which underscore that the U.S. economy remains in a slow-growth mode. How slow? Growth has averaged a so-so 2.1 percent over the past 15 quarters of the current recovery, well-below than the 3.4 and 2.9 percent growth rates of the previous two recoveries (early 1990’s and 2000’s).

With sub-par growth, nearly 12 million Americans out of work and no sign of inflation, the Federal Reserve is not likely to change monetary policy any time soon. That means low short-term interest rates and monthly purchases of $85 billion worth of bonds will continue, probably through 2013 and perhaps into 2014.

And just for fun, earnings season will roll on this week. About half of S&P 500 companies have reported results, with 69 percent of firms topping expectations and 20 percent missed, according to Thomson Reuters. But many of these firms are meeting or beating estimates based on cost cutting – just 42 percent of companies have beaten their revenue forecasts and on average, sales have come in 2 percent below estimates.

Markets: With the beginning of May ahead, should investors “sell in May and go away?” Since 1950, the Dow's average annual gain between November 1 and April 30 is 7.5 percent, versus the 0.3 percent gain between May 1 and October 31, according to the Stock Trader's Almanac. Then again, investors who bought stock on May 1 and held on, reinvesting dividends, had a return of 11.1 percent a year on average, topping the gain of the investors who sold in May and went away. Bottom line: ignore the rhymes and stick to your diversified, balanced portfolio!

• DJIA: 14,712, up 1.1% on week, up 12.3% on year
• S&P 500: 1582, up 1.7% on week, up 11% on year
• NASDAQ: 3279, up 2.3% on week, up 8.6% on year
• June Crude Oil: $93, up 5.4% on week
• June Gold: $1453.60, up 4.2% on week
• AAA Nat'l average price for gallon of regular Gas: $3.50

THE WEEK AHEAD:

Mon 4/29:

8:30 Personal Income and Spending

10:00 March Pending Homes Sales

Tues 4/30:

BP, Pfizer, UBS, NYSE Euronext, US Steel

FOMC Meeting begins

9:00 Case-Schiller Home Price Index

9:45 Chicago PMI

10:00 Consumer Confidence

Weds 5/1:

MasterCard, Merck, Time Warner, CVS Caremark, Clorox, Facebook, Visa, CBS, MetLife

Motor Vehicle Sales

8:15 ADP Private Sector employment

10:00 ISM Manufacturing Index

10:00 Construction Spending

2:00 FOMC Meeting Announcement

Thurs 5/2:

GM, Royal Dutch Shell, Kellogg, AIG, Kraft Foods

7:30 Challenger Job cuts

8:30 Weekly Claims

8:30 International Trade

8:30 Productivity and Costs

Fri 5/3:

Berkshire Hathaway

8:30 April Employment Report

10:00 Factory Orders

10:00 ISM Non-Manufacturing Index