Thursday, December 22, 2011
Today’s heavy economic schedule will likely keep the markets focused on domestic matters. The good start provided by the positive initial Jobless Claims report should help give stocks positive momentum today. The GDP revision was on the weak side, but given the stale nature of the data and the relatively no-so-bad internals of report, stocks will most likely take it in the stride. Other key economic reports on deck for a little later release include the Conference Board’s Leading Indicators and final read on the University of Michigan Consumer Sentiment survey for December.
Of the pre-market releases, the most favorable reading was on the initial Jobless Claims front, which continued the positive momentum of the last few weeks by falling to the lowest level since April 2008. Contrary to expectations of some sort of a give back following the sharp drop in the two weeks, we got another 4K drop, taking the weekly initial claims level further down to 364K. The four-week average dropped 8K 380K.
There had been some skepticism in the market over the pronounced downtrend in initial jobless claims over the last two weeks, given the inherent complications in adjusting data at this time of the year for seasonal factors. With claims declining for three weeks in a row and reaching levels not seen since 2008, I would expect this downtrend to get more credibility. At a minimum, I would expect this to cause upward revisions to monthly jobs numbers in the coming days.
The GDP report was not good relative to expectations. The market expected this final read on the third quarter GDP to come in ‘unchanged’ at 2%, but instead we got a 1.8% reading. Personal Consumption Expenditures (AMEX:PCE - News) or simply consumer spending, the biggest component of the GDP accounting for close to 70% of the total, got revised down to 1.7% from 2.3%. Driving the negative PCE revision was a drop in consumption of services, particularly healthcare services (are people getting healthier?). Business investment numbers were quite good, producing another quarter of double-digit growth.
Bottom line, the negative revision to the third quarter growth number doesn’t look good. But I wouldn’t mind the negative revision if it is primarily because Americans are spending less at the hospitals and clinics. I would rather have them spend money at the mall, eat out, and watch movies than be in the waiting room for their PCP. It don’t see the third quarter GDP revision having an negative impact on current estimates for the fourth quarter, which is running in the 3.5% range at present.
In corporate news, Yahoo (NasdaqGS:YHOO - News) is reportedly contemplating cutting its 40% stake in Alibaba Group. Shares of Vivus (NasdaqGS:VVUS - News) will likely be in the spotlight as the company’s proposed diet drug has reportedly come up against a safety issue. On the earnings front, we have negative surprises from Tibco Software (NasdaqGS:TIBX - News) and Micron Technology (NasdaqGS:MU - News).
Director of Research