subject: A Good Week for Spring Break [print this page] A Good Week for Spring Break A Good Week for Spring Break
Earnings Preview 4/1/11
The fourth quarter earnings season is over, but now we are starting to get a few first quarter reports. That makes for a very light overall earnings week. A total of just 43 firms are due to report. Just three of those are members of the S&P 500, and all of the reports will be for February fiscal periods, which makes them part of the first quarter. The fourth quarter earnings season was a strong one, and this week should start to provide clues if that will be true for the first quarter as well. The firms reporting this week include: Constellation Brands (STZ), Bed Bath & Beyond (BBBY), Monsanto (MON), Pier One (PIR) and WD-40 Company (WDFC).
It will be a light week for economic data as well, so this is probably a good week for Spring Break. We start the week with the ISM Services data, and end it with the report on Consumer Credit. Along the way we get the minutes to the last Fed meeting and of course the weekly initial claims data. International and political developments, including the race to prevent a government shutdown, will probably dominate the week.
Monday
* Nothing of particular significance.
Tuesday
* The ISM Services Index is expected to have slipped a bit from the extremely strong 59.7 reading in March. The consensus is for it to slip to 59.5. This is also a "magic 50" index, so we could see a decline and still indicate that the service side of the economy is still growing. A reading of 59.5 is still extremely strong, indicating robust growth. As with the ISM manufacturing index, the behavior of the key sub-indexes of business activity, new orders and employment are at least as interesting as the overall level of the index.
* The Minutes to the March 15 meeting of the Federal Reserve are due out. This will provide insights into how the staff and the members of the Open Market Committee see the current state of the economy and the outlook for inflation. There was probably some contention over the QE2 program, but it is likely to be finished on schedule in June.
Wednesday
* Nothing of particular significance.
Thursday
* Weekly initial claims for unemployment insurance come out. After being extremely erratic over the holidays, they have started to fall significantly, but are still bouncing around a bit. Last week they fell by 6,000 to 388,000, but only after a big upward revision to the previous week. I would expect the downward trend in claims to continue next week. The consensus is looking for initial claims to remain unchanged. A level of 388,000 seems pretty good compared to the experience of the last few years. After a huge downtrend from mid-April through the end of 2009, initial claims were locked in a tight "trading range" for most of 2010. We now appear to have broken out of that trading range to the downside. This could well indicate that the economy is about to start producing a significant number of new jobs. The four-week moving average (which smooths out the week to week noise) was under the 400,000 for the fifth week in a row. Historically that has been an inflection point at which the economy starts to add significant numbers of jobs.
* Continuing claims have also in a downtrend of late, but the road down has been bumpy. Last week they fell by 51,000 to 3.714 million. That is down 1.011 million from a year ago. I would expect a further decline this week. The consensus is looking for a level of 3.700 million. Some of the longer-term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those however, don't last forever either. Federally paid extended claims rose by 18,000 to 4.363 million, but are down by 1.687 million over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits, currently at 8.770 million, which is up 4,000 from last week (there are some timing issues so the change in continuing and existing claims does not exactly match the change in the total). The total number of people getting benefits is now 2.767 million below year ago levels. What is not known is how many people have left the extended claims via the road to prosperity, finding a new job, and how many have left on the road to poverty, having simply exhausted even the extended benefits. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
Friday
* Consumer Credit (not including mortgage debt) is expected to have expanded by $3.8 billion, on top of a $5.0 billion increase in January. That would be the fourth rise in a row after a long, and unusual string of declines as consumers have tried to repair their balance sheets. Most of the increase will probably come from non-revolving debt, such as car loans, rather than from increases in credit card debt.
* Wholesale inventories are expected to have risen at a 1.0% rate in February, down from a 1.1% rate in January.
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