6 Economic Trends You Should Care About (And Why)

Almost every day a major government agency or private organization releases new information covering the status of some pocket of the economy. As I mentioned last week, we don’t want to let the talking financial heads distract us — but there are still important reports you always want to keep an eye on.

Now, a lot of economic data is released every day. It’s my job to determine what these events will mean for stocks. So, today, I’ll share some of the top reports and economic indicators worth watching. We’ll discuss what they are, how they’ve been trending lately and what that tells us. Then I’ll lay out which ones to watch for next week — and why.

Personal Income

Source: U.S. Commerce Department (Bureau of Economic Analysis)

When It’s Reported: End of each month

What It Measures: Personal income measures income, most importantly wages and salaries, from all sources. The report also factors in other sources of income like rental payments, government subsidy payments, interest income and dividend income. This helps to predict future consumer demand, which of course comprises about two-thirds of economic activity.

The Breakdown: February saw personal income gain 0.2% — less than expected, but better than the 0.1% decline in January. It was a mixed bag, with wages and salaries, government benefit payments and rental income seeing gains, while interest income fell.

The Bottom Line: This has been a “noisy” report, impacted by things like trade-war offset payments to farmers, which is more of a one-off. But in the long term, we’re moving in the right direction. In 2018 overall, personal income gained a solid 4.5%, versus 4.4% the prior year.

Construction Spending

Source: U.S. Commerce Department (Census Bureau)

When It’s Reported: Beginning of each month (roughly)

What It Measures: This report details residential, non-residential and public expenditures on new construction for the past month. Although monthly changes are volatile and subject to huge revisions, trends extending over three months can impact the broader markets. In addition to providing insight on the construction market, the spending figures are used by economists to forecast the investment component of quarterly Gross Domestic Product.

The Breakdown: Total construction spending rose 1% in February, thanks largely to a 3.9% gain in public projects, while highway and street construction gained 9.5%. And in January, total construction spending increased 2.5%, compared to economists’ estimate for a 0.4% rise. That was the largest monthly increase since last April, again driven by public construction projects.

The Bottom Line: The U.S. construction sector is heating up. This report has been very bullish and bodes well for strong GDP growth.

Initial Claims for Unemployment

Source: U.S. Labor Department

When It’s Reported: Each Thursday

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 30,000 claims to signal a meaningful change in job growth.

The Breakdown: For the week ending March 30, initial jobless claims came in at 202,000. This was the lowest reading since 1969, and marked a 10,000 decrease from the prior week. As for the four-week moving average, that came in at 213,500, a 4,000 decrease.

The Bottom Line: Layoffs seem to be trending lower, and have been largely since its peak in early 2009. As long as it’s below 300,000, we can consider it to be at a healthy level — and we’re well into that territory.

Factory Goods Orders

Source: U.S. Commerce Department (Census Bureau)

When It’s Reported: Mid-month

What It Measures: Covering both durable and nondurable goods, this Commerce Department report offers a more comprehensive snapshot of manufacturing than the earlier durable goods report. Nondurables consist of items like food and tobacco products; these products grow at a fairly consistent monthly rate, so the market forecasts are also more accurate than the durable orders report.

This report also covers factory inventories and serves as an initial measure of inventory (to be followed shortly by the larger wholesale inventories report). Though the inventory figure is not a market-mover, economists use this number to help forecast inventories in the quarterly Gross Domestic Product report.

The Breakdown: Factory goods orders fell in February, breaking a three month streak, although not as much as expected. For January, orders had risen 0.1%, missing economists’ estimates for a 0.3% increase. And shipments slipped 0.4% in January after falling 0.2% in December.

The Bottom Line: This was a good example of one that moved the markets recently, as the drop in the 10-year Treasury yield last week followed this disappointing factory goods orders report. Ultimately I expect the U.S. economy to be resilient, certainly more so than Europe, for example.

Unemployment Rate

Source: U.S. Labor Department (Bureau of Labor Statistics)

When It’s Reported: First Friday of each month

What It Measures: This announcement consists of two separate reports. First, about 60,000 households are surveyed to determine the unemployment rate. Then, approximately 375,000 businesses are surveyed to determine the number of nonfarm payrolls, average workweek and average hourly earnings figure. Together, these surveys make up the timeliest and broadest indicator of economic activity released each month.

The Breakdown: The U.S. economy added 196,000 jobs in March, and February’s and January’s totals were both revised upwards. The March figure was also significantly higher than expected 175,000.

The Bottom Line: While March was encouraging, and jobs have been added consistently for awhile, that growth has slowed dramatically. The average monthly gain this year has been 180,000, while last year it was 223,000. But we’re holding at about 3.7% overall, so we’re still down considerably from the 2008 financial crisis. We remain in a “Goldilocks” environment of steady economic growth and an accommodative Federal Reserve.

Trade Balance

Source: U.S. Commerce Department (Bureau of Economic Analysis)

When It’s Reported: Beginning of each month (roughly)

What It Measures: The trade report is most widely watched for the latest overall trade balance. By extension, the report measures export and import levels; exports demonstrate how competitive U.S. goods and services are as well as the strength of economies overseas. Imports indicate domestic demand. The volatility in the monthly trade balance, especially on the exports side, plays an important role in Gross Domestic Product (GDP) forecasts.

The Breakdown: The trade balance came in at $51.2 billion in January, with exports of $207.3 billion versus imports of $258.5 billion. In December, the balance was $59.9 billion, so this represented a 14.6% decline.

The Bottom Line: The degree to which imports outstrip exports — otherwise known as the trade deficit — is closely watched these days. While the trade deficit dropped much more sharply than expected in January, that was primarily because imports fell to a greater degree than exports rose. But the overall number could be counted as a win for President Trump, as one of his goals in this “trade war” with China and other nations is to close this gap.

What to Watch Next Week

Monday: Factory Goods Orders. The Commerce Department will release this monthly report at 10:00 a.m. Eastern. This report reveals how many new orders for both durable and nondurable goods were made in February. It also sheds some light on how various manufacturing industries are performing, as well as detects how busy manufacturers have been and may become fulfilling various orders. Durable goods—those that do not quickly wear—account for almost 55% of total orders.

Wednesday: Consumer Price Index (CPI). The Labor Department will release this important report for March at 8:30 a.m. EST. The CPI is a measure of the price level of a fixed market basket of goods and services purchased by consumers. It is the benchmark inflation index and a very important report that can move the market.

Thursday: Producer Price Index (PPI). The Labor Department will release this monthly index that measures the price of goods at the wholesale level at 8:30 a.m. EST. There are three categories within the PPI: crude, intermediate and finished. The market tracks the finished goods index most closely, as it represents prices that are ready for sale to the end user.

Friday: University of Michigan’s Consumer Sentiment Index. The University of Michigan index is almost identical to the Conference Board index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two sub-indices‐expectations and current conditions. This index has increased its influence of late on Wall Street and has the ability to move the market up or down. Their report will be released at 10:00 a.m. Eastern.

Have a wonderful weekend, and I’ll be back next week with my thoughts on how to invest successfully in the current market environment.

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