A Little Light at the End of the Economy Tunnel…But Is it Enough?
Friday, November 26th, 2010
By George Leong, B.Comm. for Profit Confidential
Make no mistake about it; the economic situation in the United States is improving, but not at the pace I would like to see.
The Federal Reserve came out and made a downward revision in its GDP estimate for both 2010 and 2011. The Fed predicted high unemployment to continue into 2011.
Without strong jobs creation, I question the ability for strong, sustained economic recovery.
We did see strong first-time jobless claims for the week ending November 20 at an impressive 407,000, down 34,000 from the previous week and at a two-year low. The size of the decline is incredible and totally unexpected, but can it continue in the months ahead?
The improvements in the claims picture are nonetheless encouraging, but watch to see if this continues. Perhaps the major decline in numbers was an aberration or was driven by the extra hiring given Black Friday and the key holiday season upon us. Another few readings near 400,000 will clearly turn some heads, although I doubt it will happen given the continued high unemployment. For a healthy jobs market, the key level to watch for is 400,000 and below.
Also on the plus side, the Thomson Reuters/University of Michigan consumer sentiment came in at a stronger than expected 71.6 in November, the highest since June 2010.
While confidence appears to be improving, I continue to see fragility towards spending on non-essential goods and services that are not required for everyday living. That means expensive dining, new furniture and appliances, and new vehicles.
The uncertainty was clearly reflected in the weak Durable Goods reading, which was a disappointment and in my view worrisome. The Durable Goods Orders reading for October saw a disappointing decline of 3.3%, much worse than the negative 0.3% estimate polled by Briefing and down from the upwardly revised five percent in September. Excluding transportation, Durable Goods fell 2.7% versus the estimate calling for a rise of 0.4%.
I’m disappointed with the Durable Goods results, which in my view continues to indicate weak demand for non-essential goods and services. Again, until we see sustained improvement in jobs and housing, there will likely continue to be problems arising,
Now with Black Friday here, early indications point to higher spending at the cash registers. The key will be the profit margins and whether the selling is driven by heavy discounting and clearances of goods, which is not indicative of a strong retail setting.
Yes, there are some strong sales results. Take for instance the luxury goods stocks, which are continuing to fare well in spite of the economy. I guess the rich are spending again. Tiffany & Co (NYSE/TIF) managed to beat on both third-quarter sales and earnings per share. The high-end jeweler also said it expects a strong holiday season. A strong holiday sales season could drive a Santa Claus Rally extending into the New Year.
Let’s hope stocks are rewarded.
Next Post: What Makes Commodities Tick?
Previous Post: The Best Benchmark Stock of All
Tags: Black Friday, consumer sentiment, durable goods, federal reserve, first-time jobless claims, GDP growth, jobs market, luxury goods stocks, retail market, The Leong Side of the Market, U.S. economy
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
