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Published: June 28, 2010
Heading into a long holiday weekend,
company-specific news may be light. But Washington is gearing up
to release a slew of important data. Here's a look at three
economic items to watch:
Home Prices Look for a Floor
Here's a sobering stat: As of the first quarter of 2010, average
home prices across the United States are at levels similar to
what they were in the spring of 2003. They rose sharply in the
middle of the decade, but have given back all of those gains
during the past three years.
On Tuesday, we'll get the latest reading on housing prices from
the S&P Case Shiller Home Price Index. So many potential home
buyers are sitting on the sidelines waiting to see when housing
prices will turn up. They know that prices are cheap, they just
don't want to see a newly acquired asset become even cheaper.
But an upturn in housing prices could be a big motivator to get
in the game, and trigger a long-awaited rebound in demand.
Analysts at Case Shiller noted in their last report that
"housing prices rebounded from crisis lows, but recently have
seen renewed weakness as tax incentives are ending and
foreclosures are climbing." We'll probably get more of the same
when the latest set of data are released.
Rising Demand for Goods and Services
The Institute for Supply Management (ISM) takes a pair of
monthly snapshots, one for the manufacturing sector and one for
the service sector. The manufacturing report will be released on
Thursday, July 1, and lately that metric has been on a roll. The
ISM index has expanded for 10 straight months, which means that
it has been above 50.0 that whole time. (Any reading below 50.0
implies that the manufacturing sector is contracting). Of the 18
different manufacturing categories the ISM tracks, 16 grew in
May.
But growth may be weakening. That May reading, though signaling
further gains, still dropped from 60.4 to 59.7. The reading can
be erratic, rising in January, falling in February, rising in
March and April, and falling in May. That tells you that the
economic recovery has been uneven.
If the June reading
falls modestly, to
no lower than 58.5,
then investors won't
be alarmed. But any
reading below that
would clearly spook
the markets as it
would show that
manufacturing growth
has begun to sharply
decelerate. The data
will be released at
10 a.m. EST on
Thursday. The market
will be open, so if
you're an active
trader you'll need
to quickly digest
the latest number.
The All-Important
Employment Report
If it's the
first Friday of a
new month, then it's
time for the monthly
view of employment
trends. The current
round of figures is
being skewed by a
temporary spike in
census-related
hiring, so it is
unclear how the
market will react to
fresh data. Yet it
is increasingly
clear that outside
of the census,
hiring remains
anemic. And that's a
real problem, since
state, local and
federal governments
are likely to shed
many jobs in the
months to come. Any
material employment
gains in the private
sector may be offset
by the layoffs of
government workers,
keeping the headline
unemployment rate
alarmingly high.
Nevertheless,
investors would be
thrilled to see any
sort of hiring spree
in the private
sector.
You need to go back
20 years to get a
sense of how the
employment picture
may play out. In the
early 1990s, many
companies shed
workers to offset
slow sales, and then
found that a smaller
workforce yielded
much higher profit
margins. Yet even
after profits
rebounded (as they
are now), companies
held off hiring for
another year or two,
just to be sure that
the economy didn't
slip back into
recession. When
hiring finally began
to pick up a few
years later, we
experienced the
greatest spurt of
job creation in the
nation's history.
Circling back to the
somber present,
economists believe
that the
unemployment rate
will hover at 9.7%.
Any positive news on
that front will be
warmly-received by
the market, but
recent data imply
that hiring remains
weak.
-- David Sterman
Staff Writer
StreetAuthority |
