Posts Tagged ‘Conference Board’

2012 Stock Market Off to a Promising Start

Monday, February 6th, 2012

As the stock market moved between negative and positive territory on the last day of January, 2012, the Dow Jones Industrial Average was nevertheless poised to close with their biggest January gain in 15 years – despite closing down a few points for the day.  In fact, it could be the best January for Standard & Poor’s (S&P) and Dow since 1997 and since 2001 for the Nasdaq.

“Everyone is cautiously waiting for the close today to see if we can put this on the board,” said Frank Davis, director of trading at LEK Securities.  “It would be a pretty darn good foothold to start the year.”  Stocks initially rose after European Union leaders agreed to strengthen their financial firewall.  Additionally, most members have agreed to sign a new fiscal compact.  Even so, 2012’s first summit ended without new solutions to resolve Greece’s debt crisis.  “There’s positive news coming out of Europe, but it’s still very tenuous with Greece,” said Jeffrey Phillips, chief investment officer of Rehmann Financial.  “Every time we see something positive there, we seem to see it reverse in four or five days.”

The S&P 500 rose 4.3 percent in January, which is its best performance since the 6.1 percent gain that occurred in January of 1997.  One year ago, the market added a respectable 2.3 percent in January.  Following a trying 2011, investors had such low expectations that it’s easy for the year’s earliest reports to come in better than expected, said Jerry Harris, chief investment strategist at the brokerage firm Sterne Agee.  “I don’t see anything really glamorous or tremendous about the economy or earnings,” Harris said.  “But I think they’re very acceptable, and things are grinding along.”

“Longer-term investors should not be fooled by what appear to be attractive valuations for financials,” said Brian Belski, Oppenheimer & Co.’s chief investment strategist.  Any investor should look three to five years into the future and invest less money in these stocks than their S&P 500 weight would suggest because they account for roughly 14 percent of the index’s value.  The financial index was recently valued at 12.4 times earnings, which is about twice as high as it was two years ago.  “Most of these companies operate in a ‘whole new world’ of increased scrutiny and regulation,” Belski wrote, noting that more restrictive capital requirements, imposed as part of that shift, will hurt profitability.

The European debt crisis is a major culprit in the market’s volatility. Confidence that American markets can remain relatively unaffected by Europe’s difficulties has fueled gains in 2012.  Money managers, some of whom missed the upward move, seem to be willing to buy on day-to-day declines.  “The action that we’ve seen today is very similar to what we’ve seen throughout most of the year so far,” said Ryan Larson, head of equity trading at RBC Global Asset Management.  “We see the resilience showing in U.S. markets and I think that’s a theme that we’ve seen throughout 2012.  The U.S. appears to be slowly, slowly in the early stages of a decoupling from the Eurozone,” he said.

Chris Cordaro, chief investment officer at RegentAtlantic Capital, a wealth management firm, believes equities will finish sharply higher this year as Europe’s problems are resolved and investors buy into stock valuations that were beaten down through much of last year.  “We could definitely end the year much higher on equities,” he said.  “We have been favoring equities in our portfolio. We have just increased our exposure to emerging markets.”

More bad news came January 31 when the Conference Board’s consumer confidence index fell to 61.1, missing the forecast 68.  December’s level had experienced a slight upwards tick to 64.8 from 64.5.  “The US consumer has still seen a very firm turnaround since October, this also is likely to reflect the increase in gasoline prices since the start of the year,” wrote David Semmens, U.S. economist with Standard Chartered.  “While the U.S. consumer is feeling better, the turnaround is still likely to be volatile.”

“Most market participants will raise their glasses to usher out what has proved to be a decent January for performance, data and sentiment,” said Jim Reid, a global strategist at Deutsche Bank AG.

Economic Indicators Showing Signs of Life

Wednesday, January 11th, 2012

Leading economic indicators (LEI) rose 0.9 percent in October, a sign that the U.S. economy is likely to see accelerated growth and not slip into a feared double-dip recession.  According to The Conference Board, its index of leading economic indicators rose significantly faster than the revised 0.1 percent rise in September and the 0.3 percent increase in August.  After growing at an anemic pace of just 0.9 percent in the first six months of 2011, the economy grew 2.5 percent in the July – September quarter.  Some analysts are looking for even stronger growth in the 4th quarter.

Economists said the October gain and other positive reports recently should ease fears that the nation is in danger of slipping into a double-dip recession.  According to Conference Board economist Ken Goldstein, the latest leading indicators report was pointing “to continued growth this winter, possibly even gaining a little momentum by spring.”

The leading economic indicators is a subjective gauge of 10 indicators designed to signal business cycle highs and lows.  Among the 10 indicators, nine made positive contributions in October, led by building permits, the interest-rate spread, and average weekly manufacturing hours.  The sole negative contribution came from faster supplier deliveries.

Increases in consumer spending, manufacturing and homebuilding — along with fewer job losses — highlight an economy that is weathering the turbulence in financial markets caused by the European debt crisis.  Even so, a nine percent unemployment rate and political gridlock over deficit-cutting are hurting confidence, which may hamper a further pickup in the pace of growth.  “The economy looks to be getting better despite the continued drumbeat of negativity in financial markets,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc., who accurately forecast the gain.  “That speaks to U.S. resiliency.  If we can put some of these fiscal issues behind us, even for a short period of time, we might be able to come back.”

Another positive sign can be found in the University of Michigan’s six-month index of consumer expectations which rose to 56.2 in November, a five-month high, compared with 51.8 in October.  A word of caution — the measure remains below the 80.5 average of the previous expansion that ended in December 2007.

October’s results suggest strong ongoing economic activity, said Millan Mulraine, TD Securities’ economics strategist.  “On the whole, this report underscores the positive tone of the recent flow of economic reports pointing to a meaningful pick-up in overall economic activity during the quarter,” Mulraine said.  “And while the economy remains vulnerable to missteps in Europe and Washington, there is every indication that the recovery is slowly moving into the clear, building on the momentum from the last quarter.”

According to Ataman Ozyildirim, an economist at The Conference Board, “The October rebound of the LEI — largely due to the sharp pick-up in housing permits — suggests that the risk of an economic downturn has receded. Improving consumer expectations, stock markets, and labor market indicators also contributed to this month’s gain in the LEI as did the continuing positive contributions from the interest rate spread.  The Coincident Economic Index also rose somewhat, led by higher industrial production and employment.”

Economy Reaches Stall Speed

Tuesday, August 23rd, 2011

The American economy expanded at a snail’s pace of just 1.3 percent in the 2nd quarter, according to a report from the Department of Commerce. Growth in the first three months of 2011 was reduced to 0.4 percent from an earlier reading of 1.9 percent.

“Today’s first look at GDP in the 2nd quarter confirms what we already knew:  The economy isn’t growing as fast as it needs to,” said Commerce Secretary Gary Locke.  “Experts have repeatedly warned that if this uncertainty continues, our economy will pay the price.  We can’t afford to return to the same failed policies that brought us here.  We must build on the progress we’ve made over the last two years and reach a balanced compromise that will reduce our debt and at the same time strengthen our job-creating ability and global competitiveness for the future.”

Soaring gas prices and meager income gains caused consumers to limit their spending in the spring.  The abrupt slowdown means the economy in 2011 will likely grow at a slower pace than in 2010.  Additionally, economists don’t expect growth to pick up enough in the 2nd half to cut the unemployment rate, which rose to 9.2 percent In June.  Economists originally thought that a Social Security payroll tax cut would spur adequate growth to reduce the unemployment rate.  Unfortunately, the lion’s share of that money was spent filling up gas tanks as gas prices soared.  In an unfortunate twist, employers pulled back on hiring because Americans spent less.  Thanks in part to high gas prices, consumer spending was virtually flat throughout the spring.  It grew a mere 0.1 percent, after experiencing 2.1 percent growth in the winter.  Spending on long-lasting manufactured goods — primarily autos and appliances — declined 4.4 percent.

Usually reliable government spending fell for the 3rd consecutive quarter.  State and local governments also slashed spending, the seventh time in eight quarters since the recession officially came to an end.  Corporate spending on equipment and software grew 5.7 percent in the 2nd quarter, down from the 1st quarter’s impressive 8.7 percent pace and below 2010’s double-digit gains.  Additionally, American incomes are not growing.  After-tax incomes, adjusted for inflation, rose just 0.7 percent, similar to the 1st quarter and the weakest numbers since the recession ended.

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said the poor new data could push the American economy back into recession.  Although she said that the chances of that are still low. “Anemic consumption, still declining state and local government spending, tepid business investment, and soft housing activity all combined to offset some strength in exports,” she said.  “Concerns about the weak labor market and rising food and energy prices continue to weigh on consumer confidence.”  In June, the Federal Reserve cut its estimate of economic growth for the year.  The Fed now thinks that the economy will grow between 2.7 percent and 2.9 percent, down from an April estimate of 3.1 percent to 3.3 percent.

The economy is struggling to recover from the recession that lasted from 2007 to 2009, a time when the GDP contracted.  According to a government report, the recession was even worse than originally estimated.  Between the last few months of 2007 and the middle of 2009, the economy declined by 5.1 percent.  That is one percentage point more than previous estimates.

Writing in the Washington Post’s “Political Economy” column, Neil Irwin says that “But even if the number comes in somewhat higher than economists are expecting, it will be no cause for celebration.  The U.S. economy is capable of growing at about 2.5 percent a year over the longer term, as the population increases and workers become more productive.  But when the economy grows at that rate, the labor market can only tread water — accommodating the rise in the labor force, but unable to put the millions of Americans still unemployed back to work.  So, what happens to employment when the nation’s economic growth stays below that 2.5 percent rate, as it has in the 1st half of this year?  The U.S. jobless rate has risen for three months straight.  Among the major culprits in keeping job seekers out of work are the financial struggles faced by state and local governments that are cutting tens of thousands of jobs and billions of dollars in spending each month to balance their budgets.  State and local government cutbacks subtracted 1.2 percentage points from 1st quarter GDP, the Commerce Department has estimated.  Friday’s GDP release shows the amount of drag in the 2nd quarter.  States were able to delay those cutbacks when they received hundreds of billions of dollars from the federal government in 2009 to ride out the recession.  That money has all been spent, and now states are being forced to slash spending and raise taxes to comply with balanced-budget requirements.  Congress has given little serious consideration to reviving the stimulus program.”

Some economists see the light at the end of the tunnel.  “The pace of fiscal retrenchment is likely to pick up in coming years,” said Jan Hatzius, Goldman Sachs’ chief economist, “and this year’s experience confirms our view that this adjustment is likely to weigh on GDP growth.”

Pre-Crisis Credit Levels Will Return Slowly

Wednesday, August 4th, 2010

 Fed Governor Elizabeth Duke says full recovery from the recession will take time.  As the nation gradually recovers from the Great Recession, several years are likely to pass before lending returns to pre-crisis levels, according to Federal Reserve Governor Elizabeth Duke.  The return of credit growth is far slower than during any business cycle of the last four decades with the sole exception of the 1990 – 1991 recession.  At that time, consumer credit required three years and commercial real estate nearly nine years to recover, Duke said in a recent speech.

Since December of 2008, the Fed has kept its target interest rate at zero to 0.25 percent in an effort to reduce the cost of borrowing and help the economy recover from the Great Recession.  Even so, loans held by commercial banks slid by approximately five percent in 2009.  “Just as the causes for the decline in lending are multifaceted and complex and took time to evolve, the solutions will likely be equally difficult and will take time to fully work,” Duke said.  She is the sole former commercial banker to serve on the Fed’s Board of Governors.  “We at the Federal Reserve, meanwhile, will continue to do everything we can to encourage a return to a healthy credit environment.”

According to data released by the Federal Reserve, consumer borrowing increased in April for the first time in three months.  The Fed’s Open Market Committee notes that household spending is restrained by “high unemployment, modest income growth, lower housing wealth and tight credit.”  Duke said that “Just looking at the statistics, it is not hard to construct a scenario in which consumer demand for credit remains sluggish for quite a while.  Household net worth dropped about 25 percent during the crisis, about 20 percent of mortgage borrowers lack equity in their homes and consumers are quite burdened by debt payments.”

March Numbers Are Looking Good: Conference Board

Wednesday, May 5th, 2010

Leading economic indicators rose 1.4 percent in March.March brought some long-awaited upbeat economic news, with the index of leading economic indicators rising 1.4 percent.  According to MarketWatch, the milestone represents 12 consecutive monthly gains and outperformed February’s 0.4 percent increase. Ken Goldstein, a Conference Board economist, said that “Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path.”

Although seven of the 10 leading indicators were positive in March, Ian Shepherdson, chief U.S. economist with High Frequency Economics, is not particularly optimistic.  “We look for a much smaller increase in the index in April,” he said.  “The index, in our view, fails to reflect the ongoing disaster in the small business sector, so it is very likely overstating growth substantially.  Taken at face value over recent months, it suggests the economy is booming.  It isn’t, and it isn’t about to start, either.”

The month’s most positive contributions came from interest rate spreads and average weekly manufacturing hours.  Negative impacts were the real money supply and manufacturers’ new orders for capital goods not related to the defense industry.  The coincident index – a measure of the economy as it is at a given time – climbed 0.1 percent in March.  The National Bureau of Economic Research uses these indicators to determine if the economy is in a recession.

The Department of Labor reported that the U.S. economy created 162,000 jobs in March, with the largest positive contribution coming from non-farm employment.  This is the largest seasonally adjusted increase in three years.  Temporary U.S. Census hiring and a recovery from bad winter weather boosted the employment numbers.  “Payrolls employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction,” according to Ataman Ozyildirim, a Conference Board economist.

Signs of Optimism Amid Battered Consumer Confidence

Monday, November 3rd, 2008

Layoffs and the promise of more to come, falling home prices and shrinking investment portfolios have created the highest level of consumer pessimism on record, says the Conference Board.  According to an online AP report, consumer confidence sank to just 38 in October, a significant drop from the rather rosy 61.4 reported in September. The Conference Board is a nonprofit business membership and research organization that is best known for its Consumer Confidence Index and the index of Leading Economic Indicators.  Its membership includes top executives and industry leaders from the world’s most respected corporations.  Consumer opinion is crucial because spending equals approximately 70 percent of all economic activity.

Despite the Conference Board’s report, good news does exist on the retail front.  Discount big-box stores are the bright spots, and Costco was the big winner.  The firm closed out its fiscal year on August 31, 2008, with sales up 13 percent compared with the previous year.  During September, Wal-Mart Stores, Inc., reported a 2.4 percent rise in sales as cash-strapped shoppers purchased food and medicine from the retailer.  Wal-Mart’s Sam’s Club warehouse division reported an increase of 4.6 percent.  The more upscale Target Corporation reported that its net retail sales during the five-week period ending October 4 increased by 2.5 percent.