It seems that every time a new economic indicator is released, whether it pertains to the housing market, job data, retail sales or consumer confidence, the market jumps to factor in the new information, only to slowly move back to its fundamental value over the next few days. After the initial adjustment, a new indicator is released and the process repeats itself once again. (The tools in Economic Indicators For The Do-It-Yourself Investor put the market (and any evaluations) in your hands.)
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For example, a report stating that GDP exceeded expectations can cause a sudden surge in the market, which will be followed by a slow correctional period. If a subsequent finding indicating an increase in unemployment follows, equities drastically move the other way, once again deviating from the underlying fundamentals. A more appropriate way to analyze indicators is to conduct a comprehensive investigation of a number of economic figures, rather than focusing on a single variable.
For the purposes of this analysis, 10 major economic indicators are included to present an overview of the general trend and activity in March. Overall, we witnessed a mix of results making the headlines throughout the last month - some positive, some negative. Most indicators, however, showed marginal positive results when compared to February's announcements, and especially when compared to March, 2009. (Leading indicators help investors to predict and react to where the market is headed. Find out more, in Leading Economic Indicators Predict Market Trends.)
Housing data was fairly stable, although a slight negative trend was observed. Housing starts decreased by 1.61%; housing sales decreased by 0.59%, and housing prices remained basically flat. When compared to last year's figures, starts and sales increased by 11.27% and 7.04% respectively, but home prices actually saw a decrease of 1.84%.
The job market is still bleak as the unemployment rate remains at a staggering 9.7%, which is actually 1.5% above where it was last year. Likewise, the number of people unemployed for an extended period of time (at least six months) increased by 106.92% within the past year. Nonetheless, half-year unemployment is steadily decreasing and initial jobless claims have decreased by 11.24% and 31.24% on a month-over-month and year-over-year basis, respectively.
Retail has made a drastic year-over-year comeback, while monthly data is only slightly positive. Total retail sales increased to $355.5 trillion, from $354.3 trillion in the month before. However, car sales experienced a significant monthly decrease of 2.28%. The decrease can probably be attributed to the recent plethora of automotive recalls rather than the consumers' unwillingness to spend. (The institutional sector offers an intellectual and financially rewarding alternative. Find out more, in Do You Belong In Retail?)
Despite the gloomy data emerging from the housing and employment sector, businesses and consumers are confident in future prosperity. The business outlook, compiled by the Federal Reserve Bank of Philadelphia, increased to 18.9 this month, from 17.6 in the previous period, a massive upswing from last year's value of -35. Likewise, consumer confidence escalated from 26 in 2009, to 26.4 in February ,and 52.5 in March.
Overall, the monthly indicators released in March do not show a convincing picture of economic improvements. Despite that yearly values are undoubtedly superior to those of March, 2009, monthly progress, especially in terms of unemployment, still presents challenges to a full recovery. The indicators which strongly suggest economic growth do not pertain to hard sales or employment figures, but reflect the consumer and producer outlook, which are the most likely drivers of the 6% monthly increase of the S&P.
Because the housing market must still stabilize and unemployment must reduce, these issues need to be addressed within the upcoming months. After passing the health care reforms, earlier on this month, hopefully the American government will now be able to focus on some of these other pressing issues.
|Summary of Results|
|Index||This Month||Last Month||Last Year||Monthly Change||Annual change|
|Housing Starts *||612||622||550||-1.61%||11.27%|
|Existing Housing Sales*||5020||5050||4690||-0.59%||7.04%|
|Half Year Unemployment*||6133||6313||2964||-2.85%||106.92%|
|Initial Jobless Claims*||442||498||642||-11.24%||-31.15%|
|Car Sales **||51.5||52.7||50.1||-2.28%||2.79%|
|S&P 500 Index||1169.45||1104.49||797.87||5.88%||46.57%|
|***Adjusted for mean and standard deviation|
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