Consumer, Financial, and Investor Indexes Continue to March Higher

Consumer confidence indexes continued their march higher in May. The widely watched University of Michigan and Reuters index rose in its final reading of the month reaching it's highest level since last September.

Previously the Michigan index rose to 68.7 from 65.1 in April.

The more dynamic Rasmussen consumer index also continues to post solid gains. That index now stands at 73.0, up four points from a week ago and up seven points from a month ago. The Rasmussen consumer index is now thirteen points above the first reading of the year.

Throughout May the Bloomberg Financial Conditions Index (BFCIUS:IND) has rebounded sharply. The index combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into one normalized index. It closed the month at a near normal level of -2.17.

Meanwhile, the Rasmussen Investor index surged, closing the week up sixteen points from just a week ago and twenty-three points from the beginning of the year. Among investors surveyed a full third now report economic conditions getting better.

Durable Goods Orders: Best Jump in 16 months

Strong demand for communications equipment, machinery and fabricated metal led an upbeat durable goods report for April. Overall orders jumped by 1.9%.

Most analysts were wrong and had expected only a rise of 0.4%.

The bounce in new orders was broad but was led by communication equipment which alone was up 6.9 percent. Significant new orders were also seen for fabricated metals, machinery, primary metals, and electrical equipment. The monthly upward momentum was the best since December 2007.

The report also comes at a time when the cost of shipping raw materials has now jumped almost vertically. The Baltic Dry Index is up 377% from its December low.

Additional good news on the employment front posted on Thursday. New claims for unemployment continue to fall as does the 4 week moving average. The new data further solidifies Bob Gordon's assertion that the latest (and several weeks past) peak in claims will be the clear marker for this recession's end.

Brave Home Buyers - And Other Consumers

Consumer confidence is surging, investment fear is subsiding, and brave buyers are wading back into the existing home market.

On Wednesday the National Association of Realtors said that sales of existing homes rose 2.9 percent. The annual rate now stands at 4.68 million homes, up from the 4.55 million annualized rate in March.

The results were higher than most economists' had forecast.

Continued low home prices and historically low interest rates continue to attract investors and owner-occupied buyers. First time home buyers are continuing to enjoy an $8,000 tax credit from the stimulus package passed earlier this year.

In related retail market reporting, the recent consumer confidence surges are also translating to retail strength. On Wednesday the ICSC-Goldman report showed strong sales in the week ending May 23. Same-store sales were up 0.8 percent in that week with year-on-year sales up 0.5 percent -- both readings were two of the best weekly jumps of the year.

Where Do Stocks Go Next? Probably Sideways

From mid-March to early May of this year, the stock market made a swift and steep 35% rise. Since late last year, you have seen blogging here about how much the recession and now this recovery feel like that of the mid-70s. To date the stock charts still track quite closely. And psychological sentiment (although not closely measured back then) still feels similar to the jitters and ambivalence consumers and investors manifested in mid-1975.

So where do we go from here? Continuing to use 1975 as our guide, look for the market to move sideways for quite some time. After a quick 2-3 month jump up in early 1975, it wasn't until later that year and into 1976, that the market continued its march upward, resting at just north of a 60% bull move into early 1976. The market then kept meandering upward until late 1980 for a total 6 year return of close to 125%.

So we have likely seen the first leg up for stocks. For the remainder of the year, economists will be watching housing market stabilization, further improvement in manufacturing, and falling unemployment. Only then will the market have the confidence it needs to move higher.

Weekly Good News Wrap - May 18-24

Weekly Good News Wrap - May 18-24

• 21 States See Unemployment Fall in April

  Posted: Sat, 23 May 2009 02:09:00 +0000

  

• Leading Indicators Jump in April

  Posted: Thu, 21 May 2009 20:35:00 +0000

  
  

• Some Young Tech Companies Are Thriving

  Posted: Wed, 20 May 2009 02:08:00 +0000

  

• More on Recession Proof Jobs

  Posted: Tue, 19 May 2009 04:11:00 +0000

  
  

21 States See Unemployment Fall in April

This week the government's data showed that unemployment actually fell in 21 states in April. Additionally 11 states saw their unemployment numbers hold steady rather than rise. Given that the unemployment rate rose in 46 states in March, the April state numbers are further evidence that the labor market is stabilizing.

Here are highlights from 10 of those 21 states where employment is improving...

- Missouri saw the biggest drop in unemployment, with it's rate falling 0.6 percent to 8.1 percent in April.

- Wisconsin’s unemployment rate fell to 8.8 percent, compared to 9.4 percent in March.

- Arizona’s jobless rate fell to 7.7 percent in April, down slightly from its 7.8 percent reading in March.

- Colorado's unemployment rate also dropped a tenth of a percentage point in April from the previous month. It was the first month-to-month decrease in the state since October 2007. The April statewide rate registered 7.4 percent.

- The unemployment rate fell to 8.1 percent in April from 8.2 percent in March in Minnesota. It was the first rate decline in a year for that state.

- California's jobless rate improved slightly from 11.2 percent in March to 11.0 percent in April. In the San Francisco area including San Mateo and Marin counties, the unemployment rate fell to 8.3 percent in April from 8.6 percent in March. In addition to the rate drop, San Francisco, which has one of the state's strongest labor markets, also added jobs in April. Further, unemployment fell from 11.3% to 11.0% in Los Angeles County.

- Indiana's unemployment rate dropped slightly to 9.9 percent in April from 10.0 the month before. Notably unemployment rates fell significantly in most of northeast Indiana in April, compared with March. Specifically Allen County’s jobless rate fell to 9.5 percent in April from 10.8 percent in March.

- Florida's jobless rate in April was 9.6 percent, two-tenths of a percentage point below March's revised rate of 9.8 percent.

- Wisconsin’s unemployment rate fell in April to 8.8 percent, compared to 9.4 percent in March.

- New York State's unemployment rate fell from 7.8 percent in March to 7.7 percent in April. In the Big Apple unemployment also declined, dropping from 8.1 percent in March 2009 to 8.0 in April 2009. Outside of New York City, the unemployment rate was 7.4 percent in April 2009, down from March's 7.6 percent.

As employment continues to improve in coming months, you'll be the first to remember that it was the peak in initial claims for unemployment that marked the 2008-2009 recession's end.

Leading Indicators Jump in April

On Wednesday, the Conference Board released it's leading indicators report for April. Not only did the combined index rise sharply for the first time since June 2008, but when examining all the components that make up the index, strengths overcame any weaknesses. It was the first time in over a year and one half that those positive components outweighed weak ones. Stock prices, the interest rate spread, consumer expectations, initial unemployment claims, the average workweek, and supplier deliveries all pushed the index higher in April.

Conference Board economist Ken Goldstein said, "This is more broad-based. It's not just the stock market rally."

(click on chart to enlarge)

Source: (The Conference Board)

Some Young Tech Companies Are Thriving

Small business is often referred to as the job-growth engine of the US. Particularly at times when the country is rebounding from recession, persistent innovators emerge as the next business cycle leaders.

An area’s laid-off workers frequently are just the catalyst for innovation, says Paul Jerde, executive director of the Deming Center for Entrepreneurship at the University of Colorado. In a recession, "A lot of that talent gets thrown into the marketplace," he says, "the vibrancy and talent of innovators turned loose is large."

One place this is playing out today is in the Bay Area of California where major tech firms have cut jobs, but promising young companies have accelerated their business plans in order to add positions and grow market share.

For example, Lithium Technologies which creates online communities for its clients' customers, almost doubled its staffing levels in 2008. It further grew its workforce by 15 in Q1 of this year and plans to hire another 30 to 40 staff by year-end. Last year’s revenue, in the range of $10 million to $20 million, doubled from 2007's gross.

Another fast-growing bay area firm is Responsys, an email marketing service from San Bruno. The employer, with 240 staff, plans to hire 45 more workers by the end of the year. "We’re looking at this market as a real opportunity to invest big." says CEO Dan Springer.

And the Bay isn't the only place where board rooms are planning to win in today's market. Atlanta-based Cbeyond focuses on the voice and data network needs of small business. The firm expects 2009 revenue to grow about 20 percent. It recently invested tens of millions of dollars and added more than 600 jobs in an aggressive headquarters expansion -- a extremely bullish move in the face of a big bear. "We’ll likely double the size of our business over ... the next three to four [years]," says CEO James Geiger. "We’re not just surviving in this economy, we are thriving in this economy."

Mark Lupa is a managing partner for High Country Venture, an investment firm focusing on early stage Colorado-based technology startups. "The nature of people in these startups is that they’re innovators and they persevere," Lupa says. "If they've got really good technology and good people, they will eventually get funding and they will survive."

More on Recession Proof Jobs

On Monday, Treasury Secretary Geithner pointed to more positive signs in the economy, including improving credit markets. But as expected the secretary warned of continued unemployment -- an economic indicator that always lags even as the economy rebounds and returns to growth.

With that in mind let's again focus on what employment opportunities are out there. Particularly those positions that are likely to be recession proof.

For instance, many of Western New York’s largest accounting firms are sticking with their plans to hire new college graduates. While other sectors of the marketplace cut back on new hires, NY area CPA firms are tending to honor offers made last fall to college seniors.

Additionally as more and more companies look to social networks to promote their brands, they are hiring staff who can head these efforts. New positions are opening up in companies dedicated to social network marketing — social media experts who can build relationships and find customers on sites such as Twitter and Facebook.

Construction companies that have received contracts for projects funded by the economic stimulus bill are beginning to hire new workers or rehire laid-off employees, according to Associated General Contractors of America (AGC).

"Early reports indicate that the infrastructure piece of the stimulus is beginning to do exactly what was intended, put construction workers back on the job," said AGC Chief Economist Ken Simonson. Simonson also reported that other contractors are canceling planned layoffs because of stimulus-funded contracts.

Tampa General Hospital has doubled the number of pharmacists on its staff since 2001 and is looking for more. There’s a continuing shortage of pharmacists nationwide, and Florida, with its above-average number of senior citizens, ranks among the states most in need of professionals who dispense medications. The Florida Agency for Workforce Innovation has projected employment in the field of pharmacy to grow by 23 percent between 2008 and 2016.

Staffing firms around Albuquerque, NM are reporting that after a tough first quarter, the downturn shows signs of bottoming out, with hints of a rebound in the past few weeks. The firms are particularly seeing hiring demand return in professional fields, such as accounting and information technology.

Health Payment Systems Inc., a three-year-old health care billing firm in Milwaukee, also is looking for more workers. "We’ve been hiring people on a regular basis for the past three or four months and we are currently adding jobs," said Bruce Lefco, the firm’s CEO. The firm is looking to fill openings in customer service, billing and information technology.

Despite the news of job losses and unemployment numbers, there is indeed strong employment opportunity in selected parts of this economy. In fact several industry segments have actually continued to add jobs throughout this whole recession. Indeed the jobs data shows bright spots — expanding industries that promise new, stable career opportunities.

Weekly Good News Wrap - May 10-17

• It Still Feels Like 1975 - Buffett Actions Included

  Posted: Sat, 16 May 2009 04:58:00 +0000

  

• Market Applauds Recent Results of 3 Financial Stocks

  Posted: Thu, 14 May 2009 22:18:00 +0000

  

• Market Fear Continues to Subside

  Posted: Wed, 13 May 2009 03:17:00 +0000

  
  

• One More Christmas Present (In May)

  Posted: Tue, 12 May 2009 03:06:00 +0000

  
  

It Still Feels Like 1975 - Buffett Actions Included

Back in 1974-1975 I was living in Lancaster, Pennsylvania. Even though I am now out West, it sure feels like the mid-70s economically.

What was Warren Buffett doing then? I do remember everyone was still scared. Most doubted that the stock rally in the early part of 1975 could be sustained. The market moved sideways for a while. But ultimately moved higher. All the while Buffett was buying good companies.

So what's he buying now? Big Banks! Buffett's Berkshire raised its holdings in US Bancorp (USB) and Wells Fargo (WFC) this past week. Other investors are still scared. But not Warren. He knows those firms will be around ten years from now. With equity prices probably 5 to 10 times better than their beaten down current valuations. Both banks' shares fell to decade lows in the first quarter.

And what's happening in southeastern PA in 2009? Is this time different from the 70s? Thomas Russo is a partner at Gardner Russo & Gardner, a firm from Lancaster with significant holdings in Berkshire. Says Russo, "Buffett has a timeframe that transcends near-term swings."

The stock charts sure look the same.

Market Applauds Recent Results of 3 Financial Stocks

Three press releases from Comtex News Network drove three large financial stocks higher on Thursday.

All three stocks benefited from news highlighting their recent significant price gains. Betting that their recent performance is indicative of future results pushed their valuations even higher on Thursday. All three finished in the top 4 of major market price gainers.

Comtex which earlier in the year had issued an automated buy recommendation on Bank of Ireland (ADR), reported that the bank's stock has returned 197.6% as of Wednesday's opening price of 6.16. ADR closed up over 20% for the day Thursday.

Comtex News called an uptrend for Genworth Financial Inc (GNW) on 3/19/2009 at $1.98. Since then, Genworth Financial has returned 153% as of its recent price of $5.01. GNW was also up 20% for the day and another 2% after hours.

And finally Comtex published a buy call on Hartford Financial (HIG) on 3/13/2009 at $6.76. Since then, Hartford Financial has returned 123.8% as of its recent price of $15.13. HIG ran up close to 17% on Thursday and another 10% after hours.

And these financial stocks were not alone. Intel(INTC) which accounts for close to 80% of the computer microprocessor market, was up close to 3% for the day. Intel continues to underscore this week that Q1 represented the bottom for this business cycle and further stated mid week that Q2 sales appear better than projected.

The technology laden Nasdaq was up another 1.5% for the day and trading on foreign exchanges and future's indicators point to another strong rally to close the week.

It is amazing how this rebound mirrors that of the 1975 market.

Market Fear Continues to Subside

Often referred to as the fear index, VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index. It represents one measure of the market's expectation of volatility over the next 30 day period.

About a month ago The Bespoke Investment Group wrote: "the bulls would like to see the index break solidly below 40 for a longer period of time."

And the bulls continue to have their way. As the chart below shows, market fear continues its steady decline, with not only the VIX solidly below 40 for a month, but now approaching 30.

(click to enlarge)
(Source: Yahoo)

With another dive of 3% on Tuesday, readings in the 20s are easily within reach. VIX levels in the 20s were quite common in the late 90s through 2003.

With the DOW approaching 9000, consumer sentiment bouncing, and retail results firming, the VIX trend is yet another pointer to rising economic expectations.

One More Christmas Present (In May)

You may remember the three Christmas presents that the US economy gave us at the end of last year. They all meant more money in our pockets this year over last year. And that in turn has produced more retail spending in Q1 2009 than even Santa expected.

But there seems to be one more big monetary present now making its way into the US household budget. According to a recent report in the Wall Street Journal, half of the mortgage refinances in Q1 provided home owners the ability to lower their annual rate by at least 20%.

According to the Mortgage Bankers Association (MBA), $300B of new loans were originated in Q1. (Wells Fargo claimed one third of that business in their earnings call.)

So what is the bottom line for Main Street?

Freddie Mac Chief Economist Frank Nothaft says that if the Q1 refinancing pace keeps up for the rest of the year, US homeowners in aggregate will save about $10 billion in mortgage payments in just this first year after refinancing.

According to Nothaft that means on a $200,000 mortgage, borrowers are now saving on average $160 a month. That's close to $2000 for the year. And the MBA is currently forecasting double the amount refinancing business in this current quarter over Q1.

No wonder many US consumers are feeling festive again.

Weekly Economic Good News Wrapup

• Green Shoots Now Growing Leaves

  Posted: Sun, 10 May 2009 04:32:00 +0000

  
  

• 10 Large Retailers: Q1 Stronger than Expected

  Posted: Fri, 08 May 2009 03:06:00 +0000

• Dow 9000 Now Within Reach

  Posted: Thu, 07 May 2009 03:33:00 +0000

  
  

• Rising Economic Expectations Continue

  Posted: Wed, 06 May 2009 02:27:00 +0000

  
  

• Unemployment Initial Claims Peak Predicts Recession End

  Posted: Tue, 05 May 2009 03:18:00 +0000

  
  

• ISM Data Signals Return to Growth is Near

  Posted: Fri, 01 May 2009 17:35:00 +0000

  
  

• 10 Days of Good News Round Out April

  Posted: Thu, 30 Apr 2009 22:01:00 +0000

Green Shoots Now Growing Leaves

The green shoots of the US economic recovery may not have yet started the budding phase, but at this point those shoots are no doubt growing leaves.

And even though almost all commentary concerned big bank stress tests, this past week saw just about every economic report turn up more good news...

Monday:
First thing Monday morning the construction report showed that in March spending jumped up. Construction outlays posted a 0.3 percent gain. The rise was much better than the market forecast for a 1.0 percent fall. The uptick was led by private nonresidential spend which jumped 2.7 percent after just a slight increase in February. It was the first overall construction spend increase in six months.

Right on the heels of the construction report came pending home sales good news. The pending sales index rose 3.2 percent in March. The report further pointed to likely improvement in existing home sales for both April and May.

Tuesday:
Retail good news continued the weekly streak. ICSC-Goldman said same-store chain store sales rose by 0.7 percent in the May 2 week-end reading. The Redbook retail report followed with estimates that the full month of April sales, rose 1.5 percent compared to March. On the heels of those readings, Redbook released a target of a 0.5 percent month-to-month rise for May.

Tuesday also saw terrific news from the Institute for Supply Management. The ISM's non-manufacturing index -- like the previous Friday manufacturing report -- showed decisively that rates of economic contraction are slowing. New orders were especially encouraging, bouncing up more than 8 points. Purhaps most surprising to many was the employment report which also showed improvement -- up nearly 5 points.

Wednesday:
The Mortgage Bankers Association released the first good news of Wednesday. Their purchase index rose 5.0 percent. Additionally their refinancing index continued to be extremely strong rising another 1.2 percent.

The Challenger job cut report also followed with good news. Their layoff count showed a month-to-month improvement, at 132,590 in April vs. 150,411 in March. Most encouraging was that hiring intentions, improved significantly in April bouncing to 27,062 from March's 19,309 reading.

Shortly after the Challenger report more cheery news followed on employment. The ADP employment report sparked increased talk that the worst of the recession is now behind us. The last month to month ADP report had estimated private payrolls falling by 742,000. Wednesdays report... only 491,000.

Thursday:
Thursday punctuated our string of "Good News Thursdays." The retail chain store sales report showed consumers continuing to buy -- and not just at discounters. In fact on Thursday, JCPennies raised its quarterly profit guidance for the third time in less than a month. Many other retailers also guided higher.

The Monster employment index was also released on Thursday. It pointed to continuing improvement in demand for labor. The Monster employment index rose 2 points in April to 120. The report said that job postings showed particular strength in the leisure & hospitality sector and also surprisingly pointed to stabilizing employment in the finance segment.

Even more encouraging was the governments initial unemployment claims report. Initial claims fell 34,000 in the May 2 week to 601,000 down more sharply than even the most optimistic forecaster had predicted. The drop dragged down the four-week average by 14,750 to 623,500. You'll remember how acturate this falling number is in predicting the end of recessions.

Further encouraging news followed with RBC's report on consumer attitudes and spending. May RBC Index bounced to a reading of 43 from 38.3 in April and from its low in February. The index has now recorded its first three-month rally since the last quarter of 2005. The RBC index report follows a string of consumer confidence readings now showing consumer confidence mending rapidly.

And of course on Friday the published results of the big bank stress tests fueled the lion-share of economic commentary. But not surprisingly, on renewed confidence in our largest financial institutions, and as a result of all the leaves now growing on the economic green shoots, the stock market romped higher.

10 Large Retailers: Q1 Stronger than Expected

You've consistently read here that retail consumers are renewing their propensity to buy in 2009. Yesterday's same-store results represented the strongest evidence yet. Here is a list of 10 top retailers that essentially said, "Our Q1 was much stronger than we originally expected."

1. Wal-Mart(WMT) said U.S. monthly sales at stores open at least a year was up 5 percent. The average analyst estimate was for 2.9 percent increase. Demand was not just driven by necessity buying. The firm said strong sales were boosted by discretionary items such as entertainment and home goods. These indications dispel any notion that Wal-Mart is only doing well because spenders are stocking up on necessities. Since January Wal-Mart sales continue to skyrocket.

2. Target(TGT) also said its monthly sales rose in line with analysts' views. But for the whole quarter it now expects its profit to be "well above" the 52 cents per share consensus estimates. Those profits it said were driven by better than expected results at its stores throughout the quarter.

3. The Gap(GPS) also gave surprise profit guidance on Thursday. It plans a first-quarter profit of 29 cents to 30 cents per share, well above analysts' estimates of 24 cents.

4. BJ Wholesalers(BJ) also raised guidance. "Based on higher than expected merchandise sales and margins for the first three months of the fiscal year, the company now expects to report earnings per diluted share in the range of $0.41 to $0.45 for the first quarter. Previous guidance was in the range of $0.29 to $0.33 per diluted share."

5. J.C. Penney(JCP) raised its quarterly view for the third time in less than a month. The company now anticipates earnings for the first quarter to range between $0.09 and $0.11 per share. Analysts were estimating the company to earn only $0.02 per share.

6. Kohl's(KSS) also raised its quarterly forecast. Until Thursday analyst expected a $0.35 per share profit. The firm raised that outlook to $0.43 - $0.44 per share. CEO Kevin Mansell said, "Sales results for April exceeded our expectations. Childrens outperformed the Company from a line-of-business perspective and the Southwest was our strongest performing region."

7. The TJX Companies(TJX) (TJMaxx and Marshalls) reported sales for the month of April were up 1% from the same period last year. Their same store sales rose 3%. With above-plan sales in April following February and March sales which also exceeded plan, as well as strong merchandise margins, the firms said it now expects profit of $0.47-$0.49 per share up from their previous guidance of a $0.32-$0.38 range.

8. For drugstore chain Walgreens(WAG), "Most of us think the worst-case scenario we did in our planning is probably off the table," said Gregory Wasson, CEO. His firm posted a 5.7% increase April same-store sales.

Some of the best news on Thursday came from teen retailers:
9. Aeropostale(ARO), which has an aggressive discounting strategy, said its same-store sales rose 20% in April.

10. And Buckle(BKE) has now posted 21 consecutive months of double-digit same-store sales gains. The firm reported a 18.2% increase in sales for April.

In total, April sales rose an unexpected 1.2%, the biggest gain since last August. That compared to a gloomy analysts' forecast for a 0.2% decline.

This retail data combined with the ISM reports signals recovery clearly underway.

Dow 9000 Now Within Reach

U.S. stocks have now advanced to four-month highs. A swift Dow ascent to 9000 is now quite plausible.

Investors are clearly speculating that banks don’t need as much capital as had been projected. As the regulator's details on top bank stress tests become clear, it may be one of many catalysts on Thursday to launch this rally into overdrive:

1. In an interview with PBS Wednesday night Treasury Secretary Timothy Geithner said none of the 19 banks that underwent government stress tests are insolvent. The Secretary emphasized to interviewer Charlie Rose, that the results will reassure investors and the public that the U.S. financial system is sound. If the details are indeed convincing, investors will applaud quickly by opening their wallets.

2. Earlier Wednesday, the ADP report on employment cheered investors. That data may have further positive validation from the government's initial claims report Thursday morning. Further, the Monster employment index is also released Thursday morning. With the markets responding quite positively to the ADP release, a falling initial claims release combined with good news from the Monster report could have quite an euphoric effect on stock investors.

3. The report on chain store sales is also likely to give investors a boost. Earlier in the week, the retail Redbook report pointed to continued recovery in retail sales through May. Confirmation from the chain store report will leave pessimists and short sellers with limited fear to write about from that improving sector.

4. More large institutions and their advisors are shifting to more positive stances on the economy. While many remain cautious, each day sees a new economist convinced of a solid second half of 2009. On Wednesday morning Larry Kantor, head of research at Barclays Capital said, "There will be a 'surprising rebound' in the U.S. economy in the second half of 2009."

"Most of our clients have missed this rally," Kantor told CNBC. "But there’s plenty of scope for some more, as long as the economic data goes from mixed to decisively positive."

Rising Economic Expectations Continue

Expectations are indeed rising. It seems easier each day to find another economist forecasting recovery at least by year end. In fact the "green shoots" of recovery now seem to be several inches high. Obama's "glimmers of hope" seem to produce new sunbeams each day.

1. Consumer sentiment is firmly on the rise. All indexes used to measure sentiment now agree. Last Friday the Reuters/University of Michigan index rose to 65.1 from a mid-month reading of 61.9 and a March reading of 57.3.

2. Both ISM indexes now indicate strongly that rates of economic contraction have slowed substantially. The latest report shows new orders especially strong. Surprisingly employment outlooks also began to improve in both recent ISM measurements.

3. Housing data continues its positive run. The pending sales index now points to improvement in existing sales for both April and May. And Monday construction spending showed its first pickup in six months.

4. Earnings season has turned out significantly tamer than many bears had forecast. Not only have many companies easily beat consensus estimates, but companies have in turn raised their revenue and earnings guidance for the remainder of the year.

5. The 2009 stock market rise continues unabated. For those banking on stock funds in their IRAs and 401Ks, their Q2 statement gains will likely be the best in several years.

Unemployment Initial Claims Peak Predicts Recession End

Over the weekend, I read a very interesting article by world renown macroeconomist Bob Gordon. Gordon documents a tight correlation between the GDP contraction tough and the final peak in unemployment claims for a recessionary cycle. Accordingly a return to growth for the US economy is just around the corner.

According to Gordon: "In four of the past five recessions the new claims peak leads the NBER weekly trough by a range of only four to six weeks, and in the fifth recession the new claims peak lags the NBER weekly trough by two weeks. Since new claims have recently reached a peak in the week ending 4 April 2009, it is tempting to conclude that the monthly trough of the US recession could come as early as the middle of May 2009 – a date earlier than most analysts appear to expect."

Gordon presents the following charts:


Many bears will claim that the current peak in initial claims is "false." But Gordon argues that "For the peak of 4 April 2009 to be false by historical precedent, the ultimate future peak would have to be in the range of 730,000 to 800,000. As the weeks go by, such a sharp future increase in new claims looks increasingly implausible."

His bottom line: "reasoning leads me to conclude that the ultimate NBER trough of the current business cycle is likely to occur in May or June 2009, substantially earlier than is currently predicted by many professional forecasters."

(Thanks to reader Michael for the tip)

ISM Data Signals Return to Growth is Near

Since December you have read here that a return to growth by Independence Day 2009 was likely.

The March ISM Manufacturing data gave us the first opportunity to start plotting a trend line that supported that July 4 call by Professor Hirschey. For years the ISM has correlated their manufacturing index to overall economic growth. When their index exceeds 43, the overall economy is likely to be growing. When the index is above 50, not only is the overall economy growing but there is likely a return to growth in the manufacturing sector.

Given the ISM report on Friday, the ISM index trend continues to point to growth resuming around fireworks day with the manufacturing sector back on track by the end of the year.