April's Economic Pulse

By Arthur Pinkasovitch | May 04, 2010 AAA
April's Economic Pulse

Greece, Portugal and Spain had their debt downgraded, Goldman Sachs, the "golden boy" of Wall Street is being sued and BP's Gulf of Mexico oil spill continues to pollute the U.S. border with an estimated 5,000 barrels of oils per day. Yet, in spite of these disastrous events, the market, as measured by the S&P 500 is up over 2% in April and the Dow Jones Industrial Average (DJIA) steadily holds above 11,000.

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The economic indicators released throughout the month point to the overall improvement in market and industry conditions. Released at the beginning of April, gross domestic product (GDP) revealed that the output of American goods and services increased at an annual rate of 3.2% in the first quarter.

The following analysis focuses on monthly indicators that serve to paint a general economic picture for April. Because GDP is released quarterly, and largely serves as a lagging indicator with little forward looking power, its discussion will be limited. We'll be looking at the data below, and focusing on overall housing, employment, outlook and retail data to see how April's economy stacks up.

Index This Month Last Month Last Year Monthly Change Annual Change
Housing Starts 685000 637000 511,000 7.54% 34.05%
Existing Housing
5350000 5010000 4610000 6.79% 16.05%
Housing Prices 170700 164600 170000 3.71% 0.41%
9.70% 9.70% 8.60% 0.00% 12.79%
Half Year
6547000 6133000 3241000 6.75% 102.01%
Initial Jobless
448000 442000 623,000 1.36% -29.05%
20.2 18.9 -22.3 1.9% ** 113.3% **
57.9 52.3 39.2 10.71% 47.70%
Retail Sales* 363.2 357.5 337.5 1.59% 7.61%
Car Sales* 56.3 52.4 48.8 7.44% 15.37%

S&P 500
1206.78 1169.43 872.81 3.19% 38.26%
*billion **adjusted for mean and standard deviation

April Economic Pulse
In contrast to March results, which showed a mix of positive and negative statistics across multiple industries, April was full of pleasant surprises. Although unemployment remains a thorn in the U.S economy, the remaining areas of interest showed month-over-month and year-over-year improvements. Hopefully, as the positive indicators continue to emerge, increased economic activity will enable employers to expand hiring.

Latest data from the housing sector showed a strong increase; new housing building permits and existing housing sales increased by 7.54% and 6.79% respectively while housing prices (measured by the median) increased by 3.71% from the previous month. Starts and prices slightly decreased in the Northeastern states, but showed improvements in all other regions.

Two important considerations have to be made regarding the future trend of this market: various government programs are still in place to reduce foreclosures and the first-time homebuyer tax credit expired. Since the foreclosure prevention programs are not sustainable in the long run, in combination with the tax credit expiration, this can potentially increase the supply and decrease the demand of houses. (Learn more about evaluating the housing market, read Understanding The Case-Shiller Housing Index.)

The 9.7% unemployment refuses to shrink, showing a 12.79% increase from last year's levels. As a result, the number of people who have been unemployed for over half a year increased by 6.75% compared to last month's levels. The 6.55 million long-term unemployed individuals figure is 102% higher than that released in March 2009.

More negative news on the employment front came from the U.S Department of Labor report where it was revealed that the number of first time unemployment insurance claims increased by 1.36% within the last month - although there was a 9.8% decrease in the last week of April. (For more on deciphering the unemployment stats, check out The Unemployment Rate: Get Real.)

Business Outlook
The diffusion index, an aggregate measure of opinions expressed by those in the manufacturing industry showed an adjusted monthly increase of 1.88% and a yearly improvement of 113.27%. Furthermore, the number of shipping orders, among other mixed results, improved by five points. Since manufacturing activity is often considered a strong leading economic indicator, this optimism might soon have a positive impact on employment figures.

Consumer confidence, which is calculated using a survey of 5000 American households, showed a consecutive double-digit percent increase to 57.9 from 52.3.

Retail sales had a significant 1.59% increase compared to data released last month and showed a 7.61% gain over 2009 levels. Car sales played a vital role in the sector as monthly revenue increased by almost 7.5%. Ford, for example, posted a $2.1 billion profit, which easily beat Wall Street's forecasts; the company recently raised its 2010 outlook and production plan.

The Bottom Line
Convincing performance results have pushed the stock market to continue making forward strides as the S&P 500 stands at 38.26% above last year's levels. Many sectors are showing signs of recovery as consumers begin to purchase large ticket items such as houses and cars.

Compared to previous two years, there is considerably less talk about the recession, many claiming that it is officially over. However, for the million of American's that are out of work, the recession is still very real. A continued trend in the economic activity we have seen in the past month should have spill-over effects which would increase the demand for labor. And the sooner, the better.

Feeling uninformed? Read this week's financial news highlights in Water Cooler Finance: Buffett's Armed and Greece Keeps Falling.

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