ECONOMIC WATCHDOG, Feb. 1
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February 1, 2007
Economic data was abundant Thursday with reports covering the gamut. Ahead of the employment report on Friday there were several second-tier releases dealing with the jobs market. However, the two main reports on the session came from the ISM Index and the Personal Income and Outlays releases.
The ISM Index was a disappointment this morning after falling into contraction territory. The index fell to 49.3 in January from 51.4 in December and well below the 52.0 reading expected. This is the second time in the past three months that this index has been below 50. Though the manufacturing sector has been a laggard as the economy has picked up, this news does raise hopes of a Fed rate cut down the road to help spur economic growth.
Within the report, the new orders fell to 50.3 from 51.9 and inventories dropped sharply to 39.9, which is a six year low. It seems that manufacturers are putting a halt to inventory build, worried that a slow down in demand could lead to problems with inventory log jams. The employment component came in at 49.5, just a tenth higher than last month. This doesn’t do much to change the forecast for nonfarm payrolls tomorrow.
Personal incomes rose an as expected 0.5 percent in December with consumer spending up 0.7 percent. In the past year, personal incomes are up 5.9 percent, which is unchanged from November. Personal consumption is up 6.0 percent this past year, which is higher than the 5.7 percent rate seen in November. However, the personal saving rate continues to deteriorate, coming in at a negative 1.2 percent.
The PCE price index moved higher by 0.4 percent, but the core PCE price index came in at just 0.1 percent. The overall PCE index is up 2.3 percent this past year with the core PCE up 2.2 percent. Though both of these are above the Fed comfort level at 2.0 percent, most economists believe inflation will continue to ease due to prior Fed rate hikes.
The pending home sales index saw a solid gain of 4.9 percent in December. This took the index to a level of 112.4 and was the largest monthly jump since March 2004. This index is a leading indicator for housing activity and it provided the same view other housing reports have and that is that housing is experiencing a bottom and the worst is over.
The Monster Employment Index rose one point in January to 168. Within the report, 12 of 20 industries showed gains in January and this bodes well for tomorrow’s employment data. The Challenger Job Cut report showed that 62,975 job cuts were announced in January. Though up from December’s reading of 54,643, the figure was well below the year ago number of 103,466. Hiring intentions rose by just over a thousand to 7,889.
Jobless claims for the week ending Jan. 27 fell by 20,000 to a level of 307,000. This pushed the four-week moving average down by 4,500 to 305,750. This is the lowest level for this moving average in a year with the data boding well for the employment report. Expectations are for nonfarm payrolls in January to rise by about 160,000.
Overall, today’s data was in line with the view that the economy is in the midst of a soft landing and that inflation is cooling. At the same time, the housing sector looks to have bottomed and personal incomes are showing strength. The gains in the GDP data this week also point to a rise in productivity, which allows wages to increase without inflation pressures.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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