Christmas Week Data Points to Rosy 2010

Last week markets were subdued as many economists and investors on Wall Street and Main Street took several days off to prepare for holiday celebrations.

The data that did arrive was mostly reminiscent of the spirit of St Nick – slipping coinage into stocks without their owner’s knowledge.

A report on the Tuesday before Christmas showed that US corporate profits in the third quarter were up sharply from the second quarter of 2009. Profits in the third quarter rose an annualized 68.0%, following a 24.5% boost in the second quarter. Corporate profits of course are a strong indication when determining the direction of a company's stock price. When corporate profits rise, then it is a good bet the stock price will get a lift. The report underscores the fact the US corporate profits have now been up for three consecutive quarters -- a fact that shakes out any lingering economic doomsday advocates and gives additional fundamental underpinnings to a stock market that continues to be bullish. (Some indexes now up well over 75% since March)

On the same day, a report on existing home sales revealed steeply higher numbers in November on the heels of record growth in October. Existing home sales rose 7.4% in November on top of October's 9.9% lift-off. The year-on-year rate is now up 44%. The annual unit sales rate of 6.54M single-family homes and condominiums flew by even the most optimistic estimates of only 6.34M dwellings for November.

Retail sales rates in the week before Christmas Day were also jovial. The Redbook retail report illuminated results of plus 1.9% year-on-year. Many feared that a big snowstorm on the east coast would hamper sales, but the net effect of the snow was a big pick up in online shopping instead. Cumulative weekly retail results this quarter continue to point to a quite positive effect on Q4 GDP results.

A very bright spot in the economic data came on Christmas Eve. The initial jobless claims reports continue their downward trend. The claims fell another very substantial 28,000 in the Dec. 19 week to 452,000. The current report points to what it calls a "long-term trend of improvement." The four-week average also fell to 465,250 for a 2,750 decrease. Continuing claims also keep retreating to a level now at about 5M. As we said back in early November, the trends for both initial and continuing claims show sizable improvement and point to our conclusion back then, that net US job growth has now likely begun. (Just in time for Christmas) The December payrolls report (released on January 8th) will confirm that fact.

The best news is that as we move further into 2010, the job market situation will continue to improve substantially. Now that net job loss has stopped, net job growth can begin.

As our jobs chart trend predicted in November, the US economy will likely be adding nearly 500,000 jobs per month by mid 2010. Thanks Santa!

(click chart to enlarge)

Source Data: US Dept of Labor