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No Clarity For Investors Or The Fed

  • Written by Syndicated Publisher No Comments Comments
    September 10, 2013

    In last week’s column I noted that stock markets, which are always looking ahead, seemed to think the second quarter might have been the peak for the U.S. economy, rolling over into significant August declines even as a spattering of positive economic reports showed up.

    European markets tumbled even though some reports indicated the euro-zone may have finally lifted out of its recession in the second quarter.

    Asian markets dropped further, apparently not impressed by several better economic reports out of China.

    The U.S. market sank in spite of the upside revision of 2nd quarter GDP growth to 2.5% from the original report of only 1.7% growth.

    This week was packed with important economic reports. It was hoped they would bring more clarity, not only on the economic outlook, but on the seemingly all important ‘if and when’ decision by the Fed on dialing back its QE stimulus.

    But did markets or the Fed get any clarity? Let’s look at the reports.

    It was reported that factory orders fell 2.4% in July, and the U.S. PMI Mfg Index ticked down to 53.1 in August from 53.7 in July.

    But the ISM Mfg Index ticked up to 55.7 in August from 55.4 in July.

    Construction Spending was up 0.6% in July, better than the consensus forecast of 0.3%.

    But the U.S. Trade Deficit unexpectedly worsened in July, jumping 13%, as imports from other countries increased and U.S. exports fell.

    It was reported Thursday that the ISM non-mfg Index, which covers service sector business activity, surged up from 56.0 in July to 58.6 in August, its fastest pace since 2008. And it was reported that U.S. auto sales hit an annualized rate of 16.1 million units in August, the highest rate since September, 2007.

    But the most important report of the week was Friday’s employment report.

    It was awaited with some apprehension since the Fed has branded jobs as its main criteria for judging whether the economy is strong enough to handle tapering back from stimulus.

    Picking and choosing among the reports to focus on the positive ISM Mfg Index, ISM non-mfg Index, and high level of auto sales, economists raised their hopes for Friday’s employment report, expecting an upside surprise from the consensus forecast that 173,000 new jobs were created in August.

    The report was that there were 169,000 new jobs created in August, and the unemployment rate ticked down from 7.4% to 7.3%.

    On the surface that doesn’t look too bad. It missed the consensus forecast for 173,000 jobs by only 4,000, and the improvement in the unemployment rate was unexpected.

    However, the previous report that 162,000 jobs were created in July was revised down dramatically, to only 102,000. And the original report that 195,000 jobs were created in June, which was already revised down to 188,000 a month ago, was revised down further to 172,000.

    Meanwhile, the unemployment rate ticked down for troubling reasons. The overall labor force dropped again, this time by 312,000, as still more discouraged long-term unemployed gave up looking for work. That dropped the ‘labor force participation rate’ (the percentage of the labor force either working or looking for work) to 63.2%, its lowest level in 35 years.

    So some reports provided support for those convinced the economy is improving, others for those convinced the second quarter was the peak and the economy is now slowing.

    But overall they probably did nothing to help those on the fence waiting for clarity. And that includes the Fed.

    So now markets will be expected to wait for the next round of important reports, which will be from the all-important housing industry. The last series of housing reports were dismal, raising concerns that housing peaked in the second quarter. But perhaps the next reports will relieve those concerns.

    Unfortunately for the Fed, it won’t be seeing those reports before its next FOMC meeting in less than two weeks. So what it has now is pretty much what it’s going to be basing its taper or not decision on. And what markets have now for information will have to satisfy them for at least a few weeks.

    Meanwhile, in its impressive recovery from the 2008 meltdown the stock market has recovered all the way back to its peaks of 2000 and 2007.

    The economy has clearly not come close to being recovered to its level of prosperity in 2000 and 2007, which had justified those high stock market levels back then. And this week’s reports indicate it may be a long time before it does.

    Food for thought.

    Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

    Sy was Timer Digest’s #1 Gold Timer for 2012 (Gold Timer of the Year) and #2 Long-Term Stock Market Timer.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more.