Why last week's economic data is important for investors (Part 1 of 7)
The week before the June FOMC
Last week was data light in terms of economic releases, coming in between the previous week’s payrolls and other labor market releases and this week’s all-important June Federal Open Market Committee (or FOMC). Most of the data was also reported with a lag, relevant to the months prior to May. While indicators that are reported with a lag don’t necessarily move stock (IVV) and bond (BND) markets, they tend to confirm broader trends in the economy. They also fill in data gaps in more popular economic releases.
In this series, we’ll be analyzing last week’s indicators under the following categories:
- First quarter figures for the Quarterly Services Survey, released on Wednesday, June 10 (Part 2), which includes sales estimates for services sector firms like those in the transportation and warehousing business—for example, Union Pacific (UNP)—financials, and firms in the media and broadcasting businesses, among others.
- Retail sales indicators including retail sales figures for May, which released on Thursday, June 12 and the ICSC-Goldman Store Sales and Johnson Redbook sales indices, which released on Tuesday, June 10 (Part 3).
- Labor market indicators will include the Job Openings and Labor Turnover Survey (or JOLTS) and Initial Jobless Claims, which released on Tuesday, June 10 and Thursday, June 12, respectively (Part 4). Both labor market and retail indicators would impact consumer discretionary expenditure, especially affecting firms like Walgreens and Dollar General which are part of the SPDR S&P Retail ETF (XRT).
- The National Federation of Independent Business (or NFIB) Small Business Optimism Survey, released on Tuesday, June 10 (Part 5), primarily assesses trends in smaller businesses. However, it also gives economists a sense of whether economic growth is broad-based.
- Wholesale trade and inventories report which released on Tuesday, June 10 (Part 6), which relates to wholesalers.
- Business inventories report which released on Thursday, June 12 (Part 7), which would relate to manufacturers, retailers, and wholesalers. It impacts firms in broad based indices like the S&P 500 Index (IVV).
Besides the above, inflation estimates for producer prices for the month of May were also released last week. Producer prices are the prices received by manufacturers (for example—those firms included in the Vanguard Industrials ETF (VIS) including General Electric and Boeing).
In a slightly worrying setback, the Producer Price Index (or PPI) fell by 0.2% in May, compared to April, although the PPI increased by 2% on a year-over-year (or YoY) basis. Core inflation (for example—PPI excluding the volatile food and energy components) fell by 0.1%. Now this may be a one-off decline, but coming just ahead of this week’s FOMC, it should give policy makers food-for-thought.
Import and export price indices
Import and export price indices were also released last week by the Bureau of Labor Statistics (or BLS). Both price indices increased by 0.1% month-on-month (or MoM). Import price increases were primarily driven by higher prices paid for fuel imports, while higher prices received for agricultural produce was one of the major causes of export price increases.
The Reuter’s and University of Michigan’s Consumer Sentiment Index released on Friday, June 13. The index reading went down to 81.2 in June, compared to 81.7 in May. An increase in the current conditions component, was one of the report’s positives. However, survey respondents were less upbeat about their future expectations, which acted as a drag on the index.
In the next section, we’ll discuss key trends in the services sector in 1Q14, which accounts for ~80% of the nation’s gross domestic product (or GDP).
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