Will Jobs Report Make It a Good Friday? - Earnings Preview

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Earnings Preview 3/30/12

We are very much in an earnings season lull, but in a few weeks things will start to get very busy again.  This week, just 35 firms are due to report, but that includes four from the S&P 500.

With so few firms reporting, the focus is more likely to be on the economic numbers.  We have a fairly heavy schedule for the market to look at, but the really big one is not until Friday when the employment report comes out.  Let's hope that indeed makes it into a Good Friday.

Monday

  • The Institute for Supply Management ( ISM ) Manufacturing index is expected to rise to 53.0 from 52.4.  Any reading over 50 means that the manufacturing economy is expanding, and anything below it reflects contraction.  Thus manufacturing activity is expected to be somewhat stronger in March than in February, but still at a moderate pace of growth.  The overall index is made up of 10 sub-indexes, and how they are doing can be as instructive as what the overall index is doing.  In particular, pay attention to the Production, Backlog, New Orders and Employment sub-indexes.
  • Construction Spending is expected to have increased by 0.5% in February, after it declined 0.1% in January.  Better-than-normal weather may be behind some of the increased spending expected.

Tuesday

  • Factory Orders are expected to rise 1.4% following a 1.0% decline in January.  This is somewhat "old news" since we already saw a pick up in the most volatile part of Factory orders, new orders for Durable Goods.
  • The minutes to March 13th Federal Reserve Open Market Committee meeting will be released.  That could shed some light on the future direction of monetary policy and the probability of another round of quantitative easing.

Wednesday

  • The ADP appetizer for the big Friday report is served up.  In February, ADP estimated that 216,000 private sector jobs were created, a bit more pessimistic than the 233,000 seen by the BLS.  For March, things are expected to be slightly softer, with the consensus looking for ADP to report a gain of 213,000 private sector jobs.
  • The ISM Non-Manufacturing, or Service, index is expected to slip to 56.9 from 57.3 in February.  That is still a very healthy pace of expansion (anything over 50 means the non manufacturing economy is growing) but just at a slightly slower pace than last month.  The service index does not have the long history that the Manufacturing one does, but it covers a much larger portion of the economy.  As with the Manufacturing Index, the sub Indexes can be as important as the overall index.

Thursday

  • Weekly Initial Claims for Unemployment Insurance were down 5,000 to 359,000 last week.  However, that was after a massive upward revision that came from the annual tweaking of the seasonal adjustment factors.  The consensus is looking for a slight drop to 355,000 this coming week.  The drop in weekly claims well below the key 400,000 level was the first clue that the jobs situation is getting significantly better.  If they fall again it would be a powerful sign that the momentum is continuing.  We are actually now well below the average level of claims for the last 35 years.  Keep an eye on the prior week's revision as well as the change from the revised number.
  • Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 12,000 to 3.340 million. That is down 954,000, or 22.2% from a year ago. The consensus is looking for a slight increase to 3.355 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don't last forever either. Federally paid extended claims fell by 74,000 to 3.329 million last week and are down 1.028 million, or 23.4% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits -- currently at 7.424 million. The total number of people getting benefits is now 1.529 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.

Friday

  • Even though it is Good Friday and most people will not be paying that much attention, the most important report of the week is due.  The consensus is looking for total non-farm payrolls to rise by 200,000 -- down from 227,000 in February, but still a pretty solid growth rate.  Private payrolls are expected to do somewhat better, with a rise of 215,000, but that is down from 233,000 last month.  Implicitly the consensus is looking for government jobs to fall by 15,000, more than double the drop last month, but still off the average of what we saw in 2011.  The unemployment rate is expected to remain at 8.3% despite the solid job gains as more discouraged workers re-enter the workforce.  Average hourly earnings are expected to rise by just 0.1%, the same pace as last month.  The average workweek is expected to be unchanged at 34.5 hours.  That suggests that the key factor holding back job growth is lack of overall demand, not excessive regulation.  If employers had the need for more workers, but were afraid of the costs of bringing on new people due to health insurance or other regulations, then they would have their current workers put in more hours.  Other things to keep an eye on in the report is the duration of unemployment metrics, which have finally started to show some improvement but remain at extremely high levels.
  • Consumer Credit is expected to rise by $14.0 billion in February, down from a $17.0 billion rise in January.  Given the very strong increase in Consumer Spending (up 0.8%) and the low rise in Personal Income (up 0.2%) I suspect that the increase will be higher than the consensus is looking for.  The Consumer Credit numbers do not include mortgages or other real estate back-debt.


Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.  Given how few companies are reporting, we omit this section this week.

Earnings Calendar

Company Ticker Qtr End EPS Est Year Ago
EPS
Last EPS
Surprise %
Next EPS Report Date Time Daily Price
DIGITAL DOMAIN DDMG 201112 ($0.92) N/A N/A 20120402 BTO $5.60
LIFEWAY FOODS LWAY 201112 $0.05 ($0.01) 50 20120402 AMC $9.41
COMVERSE TECH CMVT 201201 $0.05 $1.14 30 20120403 BTO $6.77
CONNS INC CONN 201201 $0.29 $0.00 -175 20120403 BTO $15.67
ELEPHANT TALK ETAK 201112 ($0.07) ($0.30) N/A 20120403 $2.27
FIBROCELL SCIEN FCSC 201112 ($0.06) N/A 66.67 20120403 $0.42
GREAT BASIN GLD GBG 201112 $0.00 $0.02 -250 20120403 BTO $0.68
INTL SPEEDWAY ISCA 201202 $0.43 $0.49 6.9 20120403 BTO $27.31
MITCHAM INDS MIND 201201 $0.54 $0.17 100 20120403 AMC $21.95
SMARTHEAT INC HEAT 201112 ($0.97) $1.90 -11.11 20120403 BTO $3.06
TEAM INC TISI 201202 $0.18 $0.08 8.16 20120403 AMC $31.43
ACUITY BRANDS AYI 201202 $0.61 $0.45 10.45 20120404 BTO $63.19
ANGIODYNAMICS ANGO 201202 $0.08 $0.13 8.33 20120404 AMC $12.27
BED BATH&BEYOND BBBY 201202 $1.34 $1.12 7.95 20120404 AMC $66.72
GLOBAL PAYMENTS GPN 201202 $0.83 $0.63 0 20120404 AMC $52.23
HARRY WINSTON HWD 201201 $0.24 $0.12 33.33 20120404 AMC $14.09
MATTRESS FIRM MFRM 201201 $0.19 N/A N/A 20120404 AMC $38.11
MONSANTO CO-NEW MON 201202 $2.11 $1.87 21.05 20120404 BTO $78.91
MSC INDL DIRECT MSM 201202 $0.95 $0.80 2.15 20120404 BTO $83.54
NATL AMER UNIV NAUH 201202 $0.07 $0.14 0 20120404 AMC $6.71
PEP BOYS M M &J PBY 201201 $0.11 $0.05 0 20120404 AMC $14.91
PRICESMART INC PSMT 201202 $0.71 $0.60 -18.97 20120404 AMC $71.80
RICHARDSON ELEC RELL 201202 $0.10 $0.01 0 20120404 AMC $12.06
RUBY TUESDAY RT 201202 $0.16 $0.24 50 20120404 AMC $9.10
SCHULMAN( A ) INC SHLM 201202 $0.44 $0.39 23.81 20120404 AMC $27.15
STANDARD MICROS SMSC 201202 ($0.37) $0.07 5.88 20120404 AMC $25.85
AZZ INC AZZ 201202 $0.81 $0.73 0 20120405 AMC $51.48
CARMAX GP (CC) KMX 201202 $0.40 $0.38 -5.26 20120405 BTO $34.19
CHINA GERUI ADV CHOP 201112 $0.40 $0.23 5.71 20120405 BTO $3.58
CONSTELLATN BRD STZ 201202 $0.38 $0.35 0 20120405 BTO $23.62
PIER 1 IMPORTS PIR 201202 $0.48 $0.48 0 20120405 BTO $18.23
RPM INTL INC RPM 201202 $0.01 $0.01 -2.63 20120405 BTO $26.25
SCHNITZER STEEL SCHN 201202 $0.33 $1.10 9.02 20120405 BTO $40.00
SEMILEDS CORP LEDS 201202 ($0.27) ($0.05) 6.67 20120405 BTO $3.94
WD 40 CO WDFC 201202 $0.54 $0.53 -22.22 20120405 AMC $45.65

 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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