ECONOMIC WATCHDOG, Mar. 5
March 5, 2007
The economy is becoming a larger issue for traders, especially after the shellacking stocks took last week. Traders have become concerned about the global economy following comments out of China and economic reports in the U.S. that point to slowing. Below is the calendar for data due out this week.
Monday: ISM Non-Mfg. Index
Tuesday: ICSC-UBS Store Sales, Redbook, Productivity and Costs, Pending Home Sales Index, Factory Orders
Wednesday: Mortgage Applications, ADP Employment Report, EIA Petroleum Status Report, Beige Book
Thursday: Jobless Claims, Personal Income EIA Natural Gas Report, Chain Store Sales, Monster Employment Index
Friday: International Trade, Employment Situation, Wholesale Trade
As is always the case, the employment report will garner the most attention, but this doesn’t mean other reports want impact trading. However, nonfarm payrolls will be a key and economists are predicting that just 100,000 nonfarm payrolls were added in February. This is well below the average of 155,000 a month we have gotten during the past four months. One major concern is that if jobs growth is extremely weak, it could be a sign that the economy is falling into a recession.
The problem the Fed has is that they are scared to cut rates to spur growth given the continued problems with inflation. However, recent comments from Fed leaders have not shown concern about the economy, with most leaders seeing GDP growth solid in 2007 even as inflation pressures ease.
Productivity gains are expected to be lowered for the fourth-quarter when the data is released on Tuesday. The initial reading was for productivity growth of 3.0 percent, but new estimates are for growth of 1.6 percent. Since the initial reading, GDP growth was revised to 2.2 percent from 3.5 percent and this should translate into slower productivity growth as well. This also means that unit labor costs will likely be raised to about 3.0 percent from 1.7 percent initially.
One of the major problems these past few weeks has come from the mortgage sector. More specifically, the sub-prime mortgage arena. Sub-prime loans are those sold to consumers with less than perfect credit. They carry a higher interest rate, but also create a lot more risk for lenders. A slew of lenders have reported problems with defaults on these types of loans. This not only is a problem for these companies, but is likely to slow loans given out to consumers with questionable credit. This could lead to an even larger drop in housing activity, which could push the economy closer to a recession.
Wednesday’s Beige Book report will be closely watched to see how the 12 Fed districts are faring. This data is used by the FOMC to make decisions on monetary policy. It will be interesting to hear what Fed leaders, including Fed Chairman Bernanke, have to say about recent events abroad and in the U.S.
Oil prices fell to start the week, with a barrel of crude off $1.57 to $60.07. This is the lowest level for crude in nearly two weeks on concerns a global economic slowdown will ease demand for the commodity. With the sharp drop in Asian markets Sunday night, these worries were heightened. The news also took a toll on U.S. stocks, which fell for the eighth time in the past nine sessions.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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