Markos N. Kaminis
You have to wonder… Has Ben Bernankeʼs Federal Reserve orchestrated a masterpiece or is the band breaking up. Benʼs trusty sidekick Fred Mishkin tendered his resignation last week, leaving some of us quite concerned. The S&P 500, however, found reason to rise (+1.8%) in declining oil prices and decent economic data flow.
Last week, first quarter GDP growth was revised higher to 0.9%, from a previously reported 0.6%. Thatʼs not a recessionary figure, and the direction of change is also favorable. So what happened to that well-publicized recession everyone has been squirreling away dollars for? Guess what… we might not see it. Economists are currently projecting fractional growth for Q2.
Fridayʼs Personal Income and Consumption Report for April showed growth in both factors that only just kept pace with inflation. What was most interesting to us, as we perused through the hypnotizing text, was that growth benefited from mostly synthetic and nonrecurring drivers. For instance, payrolls decreased in both goods producing and services industries, but growth in government payrolls offset the core economic decline.
One factor we found interesting, and view a great driver of hope for Q2, is the impact of economic stimulus, which added some $7.8 billion to income. Clearly this is not going to be an ongoing factor behind growth, but we only saw a tiny portion of the rebates received in April, with the majority coming in May and June. Thus, it looks like the government might have injected the fuel at just the right moment to stave off economic contraction. Bravo Bernanke! Bravo! Weʼll check back in for Act 2, entitled “inflation,” after intermission.
The Week Ahead
This weekʼs data offers great insight into the state of the second quarter, since the employment reports are on the way!
On Monday, Construction Spending and ISM Manufacturing reports seem certain to offer more of their same depressing tendencies. Since weʼve heard nothing but warnings about Q2 from Ford (NYSE: F) and GM (NYSE: GM), Tuesdayʼs Motor Vehicle Sales Report should stall any market hope that day.
Wednesday begins the parade of labor market news, as the Challenger Job-Cut Report hits the wires. Last month Challenger noted a huge layoff number of 90K. Things do not look to improve significantly for May, judging by ongoing consolidation news from significant American corporations this past month. Before the market opens, the ADP Employment Report will also note private market job additions/losses for May.
The big news on Thursday will most likely emanate from individual retailersʼ chain store sales releases. As the rebate checks started to arrive, we noticed an immediate improvement in weekly same-store sales, so this May data could offer decent news. European bankers might completely steal the show though on Thursday, if they raise interest rates to stave off serious inflation risk in Europa.
The Employment Situation Report headlines on Friday of course. Unemployment ran at 5.0% rate in April, but it should inch higher in May. Nonfarm payrolls decreased 20K last month, and we see no reason to expect better this time around.
This weekʼs earnings schedule includes: Tuesday – Guess (NYSE: GES), Toll Brothers (NYSE: TOL); Wednesday – Star Bulk Carriers (Nasdaq: SBLK), Williams-Sonoma (NYSE: WSM); Thursday – Del Monte Foods (NYSE: DLM), Smithfield Foods (NYSE: SFD); Friday – A-Power Energy Generation (Nasdaq: APWR), Signet (NYSE: SIG) and more.