Weekly Economic Indicators: Jobs Growth, Strong Markets

Wynn job fair

Wynn job fair (Photo credit: Wikipedia)

The economic release schedule for the week of May 6th is as follows:

  • Monday:  Treasury STRIPS
  • Tuesday:  ICSC-Goldman Store Sales and Consumer Credit
  • Wednesday:  MBA Purchase Applications
  • Thursday:  Chain Store Sales, Weekly Jobless Claims, Wholesale Trade, and Fed Balance Sheet
  • Friday:  Treasury Budget

I spoke with Gordon Charlop Ph.D., Managing Director, Rosenblatt Securities, and frequent CNBC commentator, about what he will be watching. The economic calendar this week is light, however Charlop will focus on a few pieces of data, including the overall market, weekly jobless claims, and first quarter earnings.

According to the Federal Reserve, the agency has vowed to continue its monetary policy until unemployment reaches 6.5% and inflation reaches 2%. The central bank will continue to print money and they are not going to stop until the situation improves. Charlop pointed out that the employment situation has improved marginally, as the U6 numbers are not being considered, which is also part of the equation. The unemployment rate is not on track for the central banks to consider a policy change. He added one of the main reasons this is a drag on the US economy is because Europe still has its debt crisis and China is starting to slow down again. Europe and China don’t have the infrastructure in their economy to handle such a monetary policy as the US. The equity markets are benefiting from the Federal Reserve’s accommodative monetary policy and thus it will continue to look attractive compared to the bond market.

Labor Market

Charlop believes the next expansion will be in the Americas with the focus on Mexico and South America, mainly Brazil. He is expecting manufacturing jobs to move back from off shore to the US, Mexico, and Brazil, in particular making the Americas a net exporter of goods and services. America will become the number one producer of energy, especially natural gas, as lower shipping costs along with cheap labor from Latin America will enable the US to produce cheap goods and services to export to the rest of the world, competing with China.  Charlop said, “jobs are coming back to America and small businesses will benefit.”  This will allow the US to leverge its trading relationship with China as NAFTA will come into focus.

First Quarter Earnings

Charlop thinks first quarter earnings thus far have fared pretty well, where earnings have beaten analysts’ estimates, but revenues have fell short. He pointed out, it beats the alternative when earnings  fall below expectations. Approximately 402 or about 80% of the S&P 500 companies have reported first quarter results thus far, and 47% have beaten estimates on revenues, while about 73% have beaten estimates on earnings. The challenge for companies will be the 2nd and 3rd quarters. He questions whether companies will continue to pay out record dividends and authorize record share buybacks, which are driving stock prices higher.

Final Word

Gordon expects the trend of “sell in May and go away” will not happen this year. He feels investors will stick around this year, waiting for small corrections for an opportunity to buy the dips  However, he is forecasting a 4% to 5% increase in the equity market for the remainder of the year.

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