Over the years we have paid close attention to The Conference Board’s monthly publication of its U.S. Business Cycle Indicators. The most widely referenced indicator is the Leading Economic Index, but they also publish Coincident and Lagging Economic indices which are useful. The Leading Index (LEI) continues to reveal a healthy U.S. economy for the balance of the year. The Index was up 0.4% on top of a revised 1.0% increase for February.
Six of the ten components of the LEI were up led by the interest rate spread. The most negative component was consumer expectations, which have been greatly affected by energy and food prices. One source says that consumers now anticipate a 6.7% inflation rate and flat personal income. Mr. Bernanke believes these two inflation pressures will subside later in the year. Let’s hope he is right.
In the meantime we are encouraged by all three Conference Board measures and believe they provide a sound basis for the healthy stock market we have seen in recent months.
“I, however, place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared.”
- Thomas Jefferson
Last Friday CPI was reported as up 0.5% due to higher energy and food prices although core inflation, 0.1%, continues to be within Federal Reserve guidelines. This week look for several reports on the housing market starting with building permits and housing starts on Tuesday and existing home sales on Wednesday. The housing sector continues to be sluggish with continued downward pressure on prices.
Historically, residential investment has accounted for 19% of GDP growth in the early quarters of an economic recovery. GDP growth estimates for the first quarter of 2011 are being revised downward by some economists to 2% largely as a result of the slow housing recovery.
Stocks and bond markets will be closed on Friday due to the Good Friday holiday.
Earnings season will begin in earnest this week, with Alcoa kicking off the festivities Monday evening. Other noteworthy reports include JPM Wednesday morning, GOOG Thursday afternoon and BAC Friday morning. Locally, HAS reports Thursday morning.
“The Ben Bernanke” has been striving to gin up inflation, and he has succeeded. The PPI and CPI to be reported Thursday and Friday will come closer to confirming this reality.
As a result, commodities, including grains, gold and oil are rising [gasoline is up ~30% ytd] while the dollar is falling.
One consolation is the fact that equities have been [and will continue to be] a pretty good hedge against inflation.
The 1st quarter ended on a positive note with continued improvement in economic data, most notably with the unemployment rate dipping to 8.8%. Despite all the headline risk, the S&P 500 posted its best first quarter since 1998, with a gain of 5.4%.
This week’s calendar is pretty quiet with few corporate earnings and little economic updates. “M&A Monday” continues to pick up steam as corporations are becoming more comfortable with the economic landscape. Tuesday we expect to see continued improvement in the ISM-Non Manufacturing report:
The balance of the week consists of the release of the FOMC minutes, which is the summary of the discussions during the previous Federal Reserve meeting. We will also get an update on the state of the consumer with Thursday’s Consumer Credit report.