Weekly Economic Indicators: Equities Go Higher, Inflation a Possible Concern

The schedule of economic releases for the week of April 1st is as follows:

  • Monday:  Motor Vehicle Sales, PMI Manufacturing Index, ISM Manufacturing Index, and Construction Spending
  • Tuesday:  ICSC-Goldman Store and Factory Orders
  • Wednesday:  MBA Purchase Applications, ADP Employment Report, and ISM Non-Manufacturing Index
  • Thursday:  Challenger Job-Cut, Jobless Claims, and Fed Balance Sheet
  • Friday:  Employment Situation, International Trade, and Consumer Credit

I spoke with Doreen Mogavero of Mogavero, Lee & Co., frequent commentator on Bloomberg Television and Fox Business News.  She will be watching a number of economic data points, including the overall market, 1st quarter earnings, employment data, weekly jobless claims, and inflation.

With the Dow Jones Industrial Average hitting another all-time high this week and the broader S&P 500 index teetering close to its highest level, Mogavero is clear that equities will continue to go higher, as long as the Federal Reserve provides the support it needs. She continues to feel that some kind of pull back is inevitable and that we are now in a period of consolidation before the next leg up. The US stock market continues to be seen as a safe haven in these tumultuous times, although volumes still remain fairly anemic. The 10-year treasury is paying below 2% and banks are offering below 1% interest rate making equities attractive. Emerging markets could become an alternative for investors, although political risk is always a concern. Generally, US equities are seen as the better choice right now. She is concerned with 2nd quarter growth. “I don’t think that anyone out there sees a significant rise in GDP in the next quarter.”  Mogavero said,  This rally is simply a matter of US equities being the best alternative out there when searching for safe return on your capital.”

1st Quarter Earnings

According to Mogavero, companies continue to guide cautiously and she feels 1st quarter earnings will be mixed. That is an indication that it may not be easy for them to meet analyst expectations. She added that stores in the middle of Manhattan are empty. That means that even prime locations are not bringing in enough traffic to make stores profitable; another indication of small business woes in the US. This is a tremendous concern; as small business produces more than 50% of all jobs in the US.

Non-Farm Payroll Data & Weekly Jobless Claims

Mogavero also indicated that a small reduction in the unemployment rate will not make a significant difference in the economy. Although always better to go in the right direction we need to see real movement in the labor market to stimulate the economy in a sustainable way. She feels the data from the Labor Department is skewed. Unemployment figures moving in the right direction in small increments are not necessarily an indication of a better labor market, but more appropriately because workers are falling off the unemployment rolls and cannot be tracked as “not working."

“This rally is due to a reliance on the easy monetary policies of the Federal Reserve rather than a fundamental change in the direction of the economy.” She feels the non-farm payroll data will come in line with expectations of about 190K for the month of March, with the employment rate remaining at 7.7%, and jobless claims coming in line with forecasts.

Inflation

Mogavero believes investors should be paying closer attention to inflation, particularly since food and gasoline prices keeps going up, while wages remain constant.  In addition, other less talked about costs that are hitting consumers hard are increased payroll taxes and infrastructure increases in things like tolls. Real estate price activity still remains primarily in areas of short sales and foreclosures. Most of that activity is being driven by professional developers speculating on the economy in extremely price depressed areas and wealthy individuals picking up key properties at low prices.

Final Word

Europe continues to be a troubled region, and Mogavero is concerned it will drag on the global economy. She is also concerned about food prices as the world’s population continues to grow. Today we have a population of just over 7 billion people with projections for over 9 billion by 2050 and 10 billion by 2100. Places like China are building cities that are replacing farmland, so she believes it is inevitable that food will become a problem. It sounds far away, but so did the year 2000 at one time.” She added, people still don’t feel the wealth effect of this rally. “Four years ago she had the same amount of money and possessions and felt rich, today she feels scared that she will outlive her money.”