What to Heed During This Fed, Jobs, Data-Focused Week
By Marek Fuchs
The second half of this week will be a crazy quilt of economic indicators — with an emphasis on crazy. From Gross Domestic Product and the Fed meeting to jobs numbers and various earnings reports, we’re getting it all. This threatens to unleash a free association of prognostication and a whole lot of loose talk that could damage our understanding of the precise state of the economy — all at just the wrong time.
With the economy obviously teetering between recovery and regression, we are all anxious prophets. Which way do we appear to be tilting? Toward good times? Or another round of oblivion? Anyone who says they can tell you for certain is merely posturing; we need more information. Enter this week’s info dump and its inherent challenge: discriminating between the worthy and worthless.
Distinctions are the order of the week. Which data or earnings release should you ignore and which should you embrace? To keep them straight, we’ve come up with a pair of highly technical designations: “fitting” and “fuggedaboutit.” There are four fuggedaboutits for every one fitting, which should clue you in: There will be a lot of needless noise in the guise of important-seeming statistics over the next few days.
Gross Domestic Product: Fuggedaboutit. We’ve seen this movie before and it’s a particularly ugly one. That everyone, from the media to investors, is still caught flatfooted defies belief. The Commerce Department is due to release this measure of economic growth at 8:30 a.m. on Wednesday, but here’s the rub – this release is the first of three drafts. The figure is often revised by upwards of 50%, even from negative to positive growth (see: 4th quarter, last year.)
Analysts are expecting an anemic 1.0% growth rate for the second quarter, down from 1.8% in the first. But any clinical observer will tell you this: Sleep through the first release, even the second. Matters will be complicated even further on Wednesday by the fact that the Fed has tweaked the way it calculates GDP, giving more weight to money spent on research and lasting entertainment. There's no telling how this will skew the number. The upshot? Wake up in a couple of months when the third and final revision comes through.
Non-farm payroll numbers: Fuggedaboutit. The 8:30 a.m. Friday release by the Labor Department will turn this lightly traded summer Friday into a so-called “jobs Friday,” or what CNBC might term “the most important day of the economic month.” The Wall Street Journal revved up early; on Monday they termed the figure “all-important.”
Don’t let the hype trip you up.
Friday’s number is – hey, is this starting to sound familiar? – preliminary, open to steep, multiple revisions. Net revisions for April and May, for example, were up 70,000. In other words, it’s the same do-si-do as GDP.
Moreover, on any given month, these numbers can really bounce around, revisions notwithstanding. Anyone who puts too much trust in any single jobs report is setting a firetrap for his portfolio. Beyond that, it’s even impossible to gauge the short-term impact of whatever number is reported. A bad number could have a negative effect on the market, implying a stillborn recovery. At the same time, a good number could have a perverse effect on the market, as traders will fear tapering. In other words, from a practical perspective, it’s an impossible number to get a good bead on. So don’t try.
Utterances by The Federal Reserve: Fuggedaboutit. The Fed, which concludes a two-day policy meeting on Wednesday, is into gamesmanship this year. They are in the process of telling us the truth ... slowly. The truth is that they are going to taper – or tone down their easy-money ways. But they don’t want the news to panic the economy, which has grown addicted to the Fed’s unfailing generosity. So they engage in this strange seesaw kind of messaging, throwing hints that the time for tapering has arrived before backing off ever so slightly. Listen too closely and you’ll get dizzy.
Besides, attention has lurched to who will replace Ben Bernanke, the Central Bank’s chairman. And therein lies more confusion. Possible front-runner Lawrence Summers is highly controversial and one-time favorite Robert Rubin has been sullied by his disaster of an association with Citigroup (C). Fed Vice Chair Janet Yellen is a favorite of many and was this week endorsed by the New York Times. Where will this end? Perhaps the shadow knows, but the stock market doesn’t.
Auto and Truck Sales: Fuggedaboutit, kind of. These figures, due out Wednesday, are not worthless. Auto sales are a sizable component of consumer demand – about a quarter of retail sales – so they are not to be ignored. But sales don’t factor-in discounting, the extent of which really gives you a sense of the tone and tenor of the economy.
Exxon Mobile earnings (XOM): Fitting. From British Petroleum (BP) to Phillips66 (PSX), Chevron (CVX) and ConocoPhillips (COP), every oil company and its brother is reporting this week, but let’s cast our eyes upon Exxon. In a nip-and-tuck battle with Apple (AAPL) for the largest company in the world (defined by market capitalization, the oil behemoth is currently ahead), Exxon is psychologically important to the collective take on the economy. Analysts are expecting a troubled quarter on several different fronts. Specifically, they are expecting $1.90 per share, according to FactSet, when Exxon reports on Thursday, the lamest showing in nearly three years. Anything legitimately better – or worse – would be telling, so pitch forward and listen to this one.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.
