It's Always Something

Weekly Market Commentary 1-10-12

Tim Phillips, CEO – Phillips and Company

For just once I would like a piece of economic data without strings attached. I long for the olden days of the 1990's when everything just pointed up and you hardly had to think as an investor. Just steer the car in the right direction and it would go where good returns were a commodity and all the data was great.

Oh how I wish.......

Today, everything seems to have a cautionary note attached. Take for example our recent jobs report.

The Bureau of Labor Statistics (BLS) reported the unemployment rate dropped to 8.5% in December, down from 8.7%. This is the lowest reading in almost 3 years. Subsequently, we saw an addition of over 212,000 jobs in the private sector.

monthly unemployment rate

The cautionary tale is that within this data, there were roughly 42,000 jobs added in the courier and messenger industry which was most likely due to the seasonal upswing of the holidays. When you normalize this out, you get closer to the 150,000 jobs number which is more in line with expectations.

all employees

On the side of bad news, we saw many retailers post weaker than expected numbers. Companies like Target, Wal-Mart and J.C. Penny’s reported to either have missed or reduced earnings forecasts. However, certain retailers such as Macy’s and Zumiez (a specialty retailer) reflected some pretty strong numbers. Some attribute the weaker numbers as a result of mis-timing promotions and under stocking inventories.

Finally, we have two confusing messages on Leading Economic Indicators.

ecri weekly leading index

The two charts above compares the Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) to the Conference Board’s (CB) Leading Economic Indicators (LEI) over the span of many decades. From the data you can see that for most of the WLI and LEI’s history there is a reasonable degree of correlation. However, beginning in the spring of 2010 (only 6 months after the last recession) we see a major unexplained deviation between the two.

Perhaps all the divergence in this data is due to a schizophrenic economy or possibly it’s a sign we might be at a pivot point from a macro perspective. Or maybe, this is just the "new normal" and if that’s the case, we'd better get used to it always being something.

As always we appreciate all of your feedback. Please Email your thoughts and comments to me directly.

Tim Phillips, CEO – Phillips & Company


Primary Research done by:
Benjamin Hackett, Associate – Phillips & Company