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Must-know: The state of the economy

Mayur Sontakke

Improving economy may not mean positive future for coal producers (Part 1 of 5)

Improving economy

The economic recovery seems on track with the unemployment rate falling to 6.1% due to the addition of 288,000 in the non-farm payroll in June—higher than the expected 211,000. The other indicators, especially the manufacturing (DIA) and retail (XRT) indicators are also showing an increase in industrial activity and consumption, respectively.

On the manufacturing side, the manufacturing purchasing managers’ index (or PMI) released by Institute for Supply Management (or ISM) indicated continued expansion in industrial activity with a reading of 55.3 against 55.4 in May. A reading of over 50 shows expansion while below 50 indicates contraction in the economy.

The improving economy and falling employment rate seems to have boosted the consumption as seen in the spike in recently released retail indicators. The ICSC-Goldman Sachs (GS) Retail Chain Store Sales Index clocked an impressive 4.5% year-over-year (or YoY) increase for the week ending July 12. Another retail sales indicator, The Redbook Index was up 4.1% YoY for the same week. Both the of the indexes are weekly measures of comparable sales at major chain stores, discount stores, and department stores. The motor vehicle sales data beat analyst estimates at sales of 17 million vehicles at the annual rate in June. The actual figure was higher than the estimated 16.4 million and May’s 16.8 million. General Motors (GM) increased 3.7% on July 1 when motor vehicle sales data was released.

The improved economic scenario and prospects have propelled both the S&P 500 (SPY) and Down Jones (DIA) to record highs in spite of global challenges. The S&P 500 (SPY) has given 8.2% returns year-to-date (or YTD) while Dow Jones (DIA) has jumped 11.5% since February after falling in January due to the crisis in Ukraine.

While broader markets have done well, coal stocks have dropped since April. The next section in this series will cover the performance of some coal stocks.

Continue to Part 2

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