This Week's Lessons To Profit From

Before I get to this week’s biggest economic headlines, I’d like to review some of the key takeaways from Wall Street this week:

  1. A lot can happen in a week, so it pays to check my Portfolio Grader rankings for your stocks every Monday morning. This week, 40 big blue chips were upgraded or downgraded—find out which here.
  2. While Washington continues to be somewhat of a basket case, a group of American businesses are stepping up to the plate to keep the economy’s momentum going. I’m talking about the Service sector, which accounts for 70% of the U.S. workforce. In this sector, I’ve identified nine unique buying opportunities you’ll want to take a closer look at—full details here.
  3. Want to protect your 2013 profits during the historically volatile summer months? Now is the time to prepare. Aggressive stocks are the first one to take a beating in a correction, so you’ll want to limit your exposure to these spicier stocks—especially the ten I have listed here.
  4. In this low interest rate environment, dividends are still looking great. But as I mentioned last week, you still have to do your homework and screen dividend stocks for fundamental health. And now is the perfect time to do so because we’re coming up on a bunch of ex-dividend dates over the next few weeks—the complete list is here.

The American Consumer

In February, retail sales rose 1.1%. This represents the highest jump in five months, and it also was substantially higher than the consensus estimate, which called for a 0.7% gain. Most notably, rising prices at the pump contributed to 5% higher gasoline sales. But even excluding gasoline, retail sales still rose 0.6% thanks to renewed strength from car dealers, supermarkets and home improvement retailers. Meanwhile, sales at bars and restaurants declined. This report indicates that consumers are cutting back on discretionary spending in response to the 12% hike in gas prices we saw last month. This is to be expected, and considering that retail sales have risen 4.6% in the past year, the results are still pretty strong.

The Private Sector

In January, business inventories jumped 1%. This is the largest jump seen in 18 months and came well above economists’ estimates of a 0.6% rise. Automobile inventories jumped 1.9%, but even excluding transportation, retail inventories still advanced 1.3%—the biggest gain in nearly two decades. Meanwhile, business sales edged down 0.3% in January on declines in auto and furniture sales. Considering that fourth-quarter inventories were a significant drag on economic growth, this bodes well for first-quarter Gross Domestic Product (GDP) estimates.

In February, industrial production grew 0.7%, above the 0.6% consensus estimate. Notably, manufacturing output rebounded 0.8% after declining in January. Meanwhile, industry capacity utilization rose to 79.6%. This means that firms are using the most of their resources in five years. Rising industrial production is definitely a plus, but it is a sign that there isn’t as much slack in the economy. This means that there is less room for growth before more inflation is stirred up.

The Jobs Market

Last week, jobless claims declined by 10,000 to an annual rate of 332,000. This outperformed economists’ expectations that claims would rise to 350,000. Meanwhile, the four-week moving average declined by 2,750 to 346,750—the lowest level in five years! The latest jobless claims data supports the idea that the surprising strong February payroll report was no fluke. This is great news because a steadily improving job market will help fuel higher consumer spending and help counteract the effects of the government cuts.

The Inflation Picture

In February, the Producer Price Index (PPI) climbed 0.7%; this was slightly less than the 0.8% gain forecast by economists. Wholesale gasoline prices spiked 7.2%. But excluding the more volatile food and energy prices, the core PPI climbed 0.2%, in line with the consensus estimate. Interestingly enough, the PPI component for intermediate goods rose 1.3%, so it appears that businesses are passing on the higher energy costs.

In February, the Consumer Price Index (CPI) also rose 0.7%; this just came above the consensus estimate of a 0.6% gain. Consumer gasoline prices jumped 9.1%, fueling a 5.4% rise in energy prices. Excluding food and energy prices, the core CPI rose 0.2%, also matching estimates. In the past year, we’ve seen 2% core inflation at the consumer level. This means that the Fed’s goal of keeping inflation under 2% is getting tougher. Now that the CPI is rising at the fastest pace in three years, the Fed may have to tap the brakes on its money pump sooner rather than later.

That’s all I have for this week. Have a great weekend, and I’ll touch base again on Monday morning.


Louis Navellier

Louis Navellier

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