Layoff Activity Has Spiked Thanks To the Shutdown. Should We Be Concerned?

Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy. I’m here to help you sift through the barrage of economic data out there and determine what this will mean for your stocks.

Unfortunately, this week we were once again a bit light on data due to the government shutdown. So we didn’t receive the reports on International Trade, Wholesale Inventories, Business Inventories or Retail Sales from the Commerce Department, as well as the Producer Price Index (PPI) from the Labor Department.

So we have just two major economic reports out there this week:

Our Two Major Economic Reports

Consumer Credit Report

What It Measures: This report is released by the Federal Reserve every month to measure consumer debt for the past month. Consumer credit is broken down into three categories: auto, revolving (credit card) and other debt (student loans, etc.). Periods of strong spending can be accompanied by relatively weak credit growth and vice versa.

The Breakdown: In August, consumer credit rose by $13.6 billion, a 3% annual increase. This was higher than the $12 billion gain forecast by analysts. This record increase was entirely due to a $14.9 billion surge in student and auto loans. This offset an $883 million decline in credit card spending.

The Bottom Line: It is clear that some macro-uncertainties are starting to weigh on consumer confidence (higher payroll taxes, the jobs picture, the deficit ceiling, etc.). American consumers have cut back on credit card spending for the third month in a row. My hope is that the holiday season will usher in renewed optimism and get Americans to be more liberal with spending, but with Washington D.C. still in disarray, only time will tell.

Jobless Claims

What It Measures: It is an indicator of the direction of the job market. Increases in jobless claims show slowing job growth; decreases in claims signal accelerating job growth. On a week-to-week basis, jobless claims are volatile, so one of the best ways to track this measure is to look at the four-week moving average. It usually takes a jump or decline of at least 30K claims to signal a meaningful change in job growth.

The Breakdown: Last week, new jobless claims spiked 66,000 to a 374,000 annual rate. This came as somewhat of a surprise to economists, who had predicted that claims would rise, but just to a 315,000 annual rate. This has caused the four-week moving average to rise 20,000 to a 325,000 annual rate.

The Bottom Line: Jobless claims are officially at a six-month high. But before we panic over the sudden surge, keep in mind that half the weekly increase came from California, which was previously plagued with computer issues that delayed processed applications. Meanwhile, one quarter of the claims came from employees affected by the government shutdown. So we could very well see a similarly dramatic pullback in the coming weeks.

All told, the market remains nervous over the government shutdown, but in general Wall Street is increasingly looking forward to what actually matters–earnings. So read through my earlier post for a preview of the biggest earnings announcements coming at us over the next few trading days. I’ll be in touch next week as we hopefully start to see some compromise between our two political parties over the weekend.

Sincerely,

Louis Navellier

Louis Navellier

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