Investors Beware of Economic Speed Bumps

Investor’s first read      – Brooksie’s edge before the open

Wednesday, May 2, 2012        9:10 a.m. ET

DJIA: 13,279.72

S&P 500:   1405.82

Nasdaq Comp.: 3050.44

Russell 2000: 816.01

There is enough data in to conclude in hindsight that the U.S. economic recovery which officially started in June 2009 has been irregular, unbalanced, intermittent, and sporadic, sending the wrong signals  at times to chase investors out of stocks only to herd them back in weeks later.

Let’s turn the clock back one day for an example. Yesterday, the Institute for Supply Management (ISM) reported a jump in its index to 54.8 for April from 53.4 in March, far better than Bloomberg News’ survey of 79 economists who concluded it would drop to 53.

This surprise was responsible for a surge in stock prices, even though the Chicago Purchase Managers’ Index for April, reported Monday, showed a sharp drop to 56.2 from 62.2.

An hour ago, the ADP Employment Report was released and the numbers were disappointing showing  a sharp drop of private sector hires in April to 119,000.  Stock-index futures immediately declined.  This bodes ill for Friday’s Employment Situation Report which disappointed the Street a month ago and triggered a sharp sell off in stock prices.

What’s my point?

Simply that this is normal behavior for an economy climbing out of the economic abyss caused by the worst recession since the 1930s.

Stop for a moment to consider “other factors” impacting the economy such as Europe’s sovereign debt woes, Congressional brinkmanship, and election year negative spin, and this recovery deserves better marks than  the press is giving it.

And that is what the stock market has been telling us as it soars beyond most  analyst’s expectations.

The “What if ?” factor intercedes at times to trigger a plunge.  What if Europe implodes ? What if we get a double-dip recession ? What if gasoline prices top $4 a gallon ?

These are nasty  speed bumps along the way, but not an insurmountable obstacle.

TODAY: Soft open with likely slippage to DJIA 13,158 (S&P 500: 1392) during the day. The Street will now be awaiting the Jobless Claims Report at 8:30 tomorrow and Employment Situation report  at 8:30 Friday in hope that these reports along with the ADP report are only a speed bump in a business expansion, however slow.

MONDAY

Personal Income (8:30a.m.)  – Rose 0.4% in March vs a  revised increase of  0.3% in February following a 0.2% . Personal Spending rose 0.3% in March vs. a gain of 0.9% in February. Personal Consumption Expenditures (PCE) increased 0.2% vs. February’s plus 0.1%.

Chicago PMI (8:30a.m.) – declined sharply to 56.2 in April  from March’s  62.2 and February’s 64.0. Projections  ran between 58 and 62.9. The survey reflects manufacturing and non-manufacturing business in the Chicago area.

TUESDAY

ISM Manufacturing Index (10 a.m.) – That short for Institute for Supply Management Index which says little in itself, but its is a survey of a wide spectrum of business including employment, production, new orders, supplier deliveries, and inventories. Big surprise here.  The Index for April was up to 54.8 from 53.6. Economists forecast 52.9.

Construction Spending (10 a.m.) – grew less than forecast in March  with a 0.1% gain vs. a projected gain of  0.5%. Retrenchment by state and local governments was blamed for the shortfall.      February’s decline was revised to  1.4% .Construction of single-family homes paced the increase in private residential construction, multifamily construction slowed but is still up 24% YOY, outpacing an 8.4% gain in houses.

WEDNESDAY

ADP Employment Report (8:15 a.m.)– Private payroll employment  in April was 119,000 vs. a  revised  201,000 in March.  Investors will be watching this in hope of getting an early read on Friday’s critical Employment Situation Report which disappointed the Street and hammered the stock market in late March.

Factory Orders ( 10 a.m.) – rebounded  1.3% in February vs. a 1.1% decline in January.

THURSDAY

Jobless Claims (8:30) – Decline a ho-hum 1,000 claims for the week ended Apr. 21 to 388,000 from a upwardly revised 389,000 the week before bringoing the 4-week moving average up to 381,750.

Productivity and Costs (8:30 a.m.) – final estimate for Q4 was up to an annualized rate of 0.9%. Unit labor costs were up 2.8% vs.  a Q3 rate of3.9%.

ISM Non-Manufacturing Survey of 375 + firms (10 a.m.) fell 1.3 points to 56 reflecting a slowdown in new orders to 58.8 from 61.2.  The Index encompasses agriculture, mining, construction, transportation, communications, wholesale and retail trade.

FRIDAY

Employment Situation (8:30 a.m.) – new hires increased a very disappointing 120,000 in March vs. a rise of 240,000 in February and 275,000 in January. Included is the Unemployment Report which dropped in March to 8.2% from 8.3% in February.

George  Brooks

*Stock Trader’s Almanac

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The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.