STRONG ECONOMY: IS PERCEPTION REALITY?

by Timothy S. O’Neil, SVP, Trust Investment Officer CFP®, CTFA

An interesting phenomenon which has seen increasing ink of late in the financial press is a growing separation between the perception of the strength of the economy, so-called soft data, and hard data about the actual strength of the economy.

Wealth management, investment, strong economy

Consumers are reaching for their wallet more often as confidence climbs.

As most recently confirmed by this week’s unexpectedly strong University of Michigan Consumer Confidence Index number, the perception seems to be that the economy is getting stronger and conditions are improving.  The hard data generally does not confirm that, as evidenced by the retail sales figures which came out this morning.  By increasing at only an annualized rate of 1.2%, well below the expected rate of 3.6%, this indicator seems to be saying that the consumer continues to sit on his or her hands.  That is not expected to change any time soon, as surveys have shown that fully 50% of those who expect to receive refunds from the IRS plan not to spend but rather to save the checks when they arrive.  Until the consumer, responsible for some 70% of U. S. economic activity, starts to act on his or her feelings the economy will continue to poke along.

SPOTLIGHT ON…mortgage applications.

Household formation is the backbone of the economy, with all kinds of different industries selling products and services to homeowners.  Applications, either for new mortgages or refinanced mortgages, are a way to track the pace of this activity.  Refinances are important in that they are ordinarily taken in order to lower monthly payments, thereby freeing up income to be devoted to other purposes.  While the numbers can be volatile from week to week, they can provide information about the strength of the housing market that investors can use.

ECONOMIC INDICATORS ANNOUNCED THIS WEEK

MONDAY

Labor Market Conditions IndexPrevious, February:                                  0.6Previous (February) revised:                   1.5Announced (March):                                0.4

TUESDAY

  • National Federation of Independent Business Small Business Optimism Index
    • Previous (February):                                 105.3
    • Expected (March):                                     104.8
    • Announced:                                                  104.7
  • Job Openings and Labor Turnover Survey (JOLTS), in millions
    • Previous (January):                                        5.626
    • Announced (February):                                 5.743

WEDNESDAY

  • Mortgage Bankers’ Association Mortgage Applications
    • Purchases, previous:                                +1.0%
    • Purchases, announced:                            +3.0%
    • Refinances, previous:                               -4.0%
    • Refinances, announced:                           unchanged
  • Import and Export Prices
    • Import prices, previous (February):             +0.2
    • Import prices, expected (March):                   -0.2
    • Announced:                                                         -0.2%
  • Export prices, previous (February):                         +0.3
    • Export prices, expected (March):                   +0.1
    • Announced:                                                         +0.2%

THURSDAY

  • Initial Unemployment Claims
    • Previous (week ended 3/25):                    234,000
    • Expected (week ended 4/8):                     243,000
    • Announced:                                           234,000
  • Producer Price Index—Final Demand (all items)
    • Previous (February):                                 +0.3%
    • Expected (March):                           unchanged
    • Announced:                                                 -0.1%
  • Producer Price Index—Final Demand (core, excluding food and energy)
    • Previous (February):                                 +0.3%
    • Expected (March):                                     +0.2%
    • Announced:                                        unchanged
  • University of Michigan Consumer Sentiment
    • Previous (March, final):                               96.9
    • Expected (April, preliminary):                    97.0
    • Announced:                                                     98.0

THURSDAY (con’t)

  • EIA Natural Gas Report (in billions of cubic feet)
    • Previous (change for week ended 3/31):               +2
    • For week ended 4/7                                           +10

Baker-Hughes Rig Count

  • NA rig count (previous, week ended 4/7):              971
    • For week ended 4/13:                                          965
    • U.S. rig count (previous, week ended 4/7):             839
    • For week ended 4/13:                                         847

(note: last year at this time the count was 440)

  • GoM rig count (previous, week ended 4/7):           22
    • For week ended 4/13:                                         21
  • Canada rig count (previous, week ended 4/7):        132
    • For week ended 4/13:                                         118

(note: last year at this time the count was 40)

FRIDAY

  • Consumer Price Index (all items)
    • Previous (February):                                 +0.1%
    • Expected (March):                                   unchanged
    • Announced:                                                  -0.3%
    • 12-month change:                                       +2.4%
  • Consumer Price Index (core, excluding food and energy)
    • Previous (February):                                 +0.2%
    • Expected (March):                                     +0.2%
    • Announced:                                                  -0.1%
    • 12-month change:                                      +2.0%
  • Retail Sales (all items)
    • Previous (February):                                  +0.1%
    • Expected (March):                                   unchanged
    • Announced:                                                   -0.2%
  • Retail Sales (excluding automobiles)
    • Previous (February):                                   +0.2%
    • Expected (March):                                       +0.2%
    • Announced:                                                   +0.1%
  • Business Inventories
    • Previous (January):                                     +0.3%
    • Expected (February):                                  +0.3%
    • Announced:                                                   +0.3%

Source: Wall Street Journal Market Data Center       Not FDIC Insured—May Lose Value—No Bank Guarantee

For Additional Information, Contact Herring Bank’s Wealth Management Team @ (806) 242-3744