Economic Reports Scorecard

Relative to expectations, the incoming reports over the last two weeks have run about even, just about as many better than expected as worse. That’s a significant improvement over the trend from last year and early this year. I would emphasize however this is a result of reduced expectations not an improvement in the actual data. From the perspective of the investor though, that may not matter. Stocks have fallen as economic and earnings growth expectations have fallen. At some point they will have fallen far enough to compensate for the actual economic situation. There is no guarantee, of course, that the situation won’t continue to deteriorate necessitating a further reduction in expectations and lower stock prices. But it is generally decent news that analysts’ expectations have caught up to reality.

Looking at the actual data does not provide much comfort for the economic bulls however. There are bright spots if you squint. The income and retail spending numbers haven’t been all that bad, at least for this recovery; they still look pretty awful compared to past ones. Construction still looks pretty solid up 8.2% year over year, although that growth rate has come down from double digits. Jobless claims continue to trend below 300k, a coincident indicator for which the trend has yet to change. Employment was a positive if quite a bit less than expected.

But there is plenty that worries as well. The manufacturing data continues to lead on the downside and now the services sector may be slowing as well. The ISM manufacturing survey at 48.2 wasn’t much of a surprise (it was under 50 last month too) but the non-manufacturing version at 53.5 was down and missed expectations badly. Inventories are still stacked pretty high relative to sales with business inventories to sales now at a cycle high of 1.39. One has to go back to May of 2009 to find a higher number and it was falling back then. In a rising trend the last time we breached that level was in the depths of the Great Recession in November of 2008. That is not a comforting thought and no it isn’t all about oil. Even in employment there was one report that might give Yellen pause – Challenger reported a big surge in layoffs led by retail with energy coming in second.

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