While you were away celebrating the holidays, theeconomy sprang
to life. I can't blame you for not noticing. After all, the
holidays are supposed to be a festive time. And the U.S.economy has
been stuck in the mud for an extended period.
Sure, we're out of the recession, but there's little reason for
cheer either, especially for the estimated 17% of the U.S.
population that is either officially or unofficially counted as
unemployed. There were signs of life in theeconomy last spring, but
those "green shoots" turned brown by summer.
Yet while many investors took a respite from the stock market, a
curious thing happened in the final days of December: Those green
shoots re-appeared. In various corners of theeconomy , activity is
starting to pick up, and if it can be sustained, a virtuous cycle
may ensue whereby modest growth begets more robust growth as
What you missed
The U.S.economy starts and ends with jobs. Any improvement in the
employment picture would provide a tangible boost to many sectors
of theeconomy . So it's helpful to see jobless claims start to
fall. New unemployment claims fell by 34,000 last week to levels
last seen nearly 30 months ago. It may be a statistical blip due to
the holiday-shortened week, but the less volatile 4-weekmoving
average also is starting to look healthier.
Source: Labor Dept.
Just a few days before Christmas, we also learned that orders for
durable goods -- excluding the volatile aircraft category -- rose
2.6% sequentially in November, reversing losses seen in the prior
To cap things off, the Institute for Supply Management (
) reported on Monday morning that manufacturing activity continued
to expand, while several data points implied that the first quarter
of 2011 should be bring more good news from the factory floor. In a
separate report also released on Monday, the Commerce Department
noted a 0.4% sequential jump in construction spending in November,
slightly ahead of consensus forecasts.
The coming fortnight will bring further clues as to whether
theeconomy is really swinging back into action. Here are some key
items to watch:
Friday, Jan. 7: the monthly employment reading
Even as jobless claims fall, theunemployment rate has barely
budged. An improvingeconomy can provide a distorted view of this
snapshot, as formerly discouraged workers get back in the job hunt.
By some estimates, there are almost as many people that are
unemployed and not even bothering to look for work (and are thus
uncounted) as there are people that are actively seeking work. That
means the headline number of 9% to 10% unemployment may actually be
closer to 17%. As a result, anunemployment rate stuck above 9%
doesn't necessarily mean that conditions aren't improving. It only
means that the ranks of the uncounted are moving into the ranks of
Nonfarm payrolls grew by just 39,000 in November, thanks in large
part offsetting layoffs at state and local governments. Yet
economists think payrolls expanded by a healthier 140,000 in
December, which would drop theunemployment rate from 9.8% to 9.7%.
If they're right, you'll start to hear about forecasts for even
better numbers in the months ahead. It's been nearly three years
since theeconomy was consistently creating more than 100,000 jobs
per month. But be prepared for some of that momentum to be blunted
by the public sector, where further deep layoffs appear inevitable
Friday, Jan. 14
One of my favorite economic indicators, which is overlooked by
most, is the National Federation of Small Business (NFIB)
OptimismIndex . Even as large enterprises may look to embark on new
hiring schemes this year, it's the smaller firms that really set
the conditions for increasingly dynamic economic activity, as they
are much more likely to concentrate any hiring plans here in the
United States. The NFIBindex is looking better these days, after
having risen for four straight months to a recent 93.2. It bottomed
out at 81 more than a year ago. Any move toward the 100 mark would
be a clear sign of better days ahead. The NFIB will release its
latest snapshot next Friday, Jan. 14.
That's actually shaping up to be a very important day foreconomy
watchers: We'll also get the latest reading on consumer prices,
retail sales, industrial production, consumer sentiment and
business inventories. By the end of that day, we'll have a much
clearer sense of aneconomy on the mend, or perhaps yet another
sober read-through of dismal data.
Action to Take -->
Stocks kicked off the new year on a very happy note, posting
impressive gains on Monday. Investor bullishness stems from hopes
that these economic data points will keep rising higher. Circle
your calendar for Jan. 14. The torrent of economic news released
that day will set the stage for an even higher stock market. But if
the data are weak, any early January rally could quickly peter out.
You should prepare yourself, either way.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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