Was Today's Rally Thanks to the Economy?

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:

Private Construction Up, Public Construction Down

In December, construction activity rose at a 0.1% annual rate to $930.6 billion. Breaking it down, private construction spending hit a five-year high while public construction spending fell by the most in a year. Economists had expected construction spending to fall 0.1% in December so the report topped expectations. Meanwhile, November construction spending was revised down to 0.8% from 1.0%. The December construction spending report paints a picture where the private sector is pulling its weight of the recovery while government cuts continue to be a drag. Even so, construction spending for 2013 jumped 4.8% over what was spent in 2012, which is good news.

Trains Didn’t Leave the Station

In December, factory goods orders declined 1.5%, slightly better than economists’ consensus estimate of a 1.7% drop. Notably, transportation orders plunged 9.7%, following 8.1% rise in November. This is the largest such drop in five months. Excluding transportation orders, all other factory orders rose 0.2% in December. At first glance, this number looks bad. But it’s obvious that much of the drop was due to transportation orders, which tend to fluctuate pretty wildly this time of year. Further, unseasonably cold weather put a damper on vehicle orders. Fortunately, ISM reported on Wednesday that its non-manufacturing index rose to 54 in January, up from 53 in December. So the service sector is obviously still growing and not being negatively impacted by the weather.

The Set Up…

Last week, initial claims for unemployment plunged by 20,000 to an annual rate of 331,000. Economists had called for a 335,000 rate so this was stronger than expected. Meanwhile, the more stable four-week moving average ticked up slightly from 333,750 to 334,000. The consensus is that this report was somewhat of a relief after jobless claims spiked 22,000 last week (including the latest upward revision). However, this report was soon overshadowed by the surprising payroll report, which I’ll cover next.

And the Punchline

In January, only 113,000 payroll jobs were created, substantially below economist consensus estimate of 189,000.  The unemployment rate declined to 6.6% in January, down from 6.7% in December due largely to a shrinking workforce. Also discouraging is that December’s payroll report was revised higher by just 1,000 to 76,000. However, November’s payroll was revised higher by 33,000 to a very healthy 274,000.  Clearly, job creation has decelerated dramatically in the past two months. Although the severe winter weather may be partially to blame, economists are growing concerned.  The most interesting tidbit in the January payroll report is that manufacturing created 10,000 more jobs that the service industry. The fact that many folks could not get to work due to the severe winter weather likely also curtailed service sector job creation.

Good News for Trade

In December, the trade gap widened by 12% to $38.7 billion. Economists had expected the trade deficit to increase, but just to $37.0 billion. What happened was that exports slipped 2.2% to $191.3 billion while imports rose 1.6% to $230 billion. In 2013, the U.S. trade deficit declined by 11.8% to $471.5 billion compared to $534.7 billion in 2012. This report was weaker than expected, so many economists are expected to trim their fourth-quarter GDP estimates slightly. The silver lining is that U.S. petroleum exports of refined products hit a record high of $13.5 billion. There’s no doubt that the domestic energy boom boosts the U.S.’s standing as a major exporter.

Have a wonderful weekend. I’ll be back bright and early on Monday morning to post the new Stock of the Day.

Sincerely,

Louis Navellier

Louis Navellier

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