We live in a world of numbers. Nowhere is this more prevalent than on Wall Street. It seems that we have an index for just about everything. Trying to follow all this data is quite overwhelming. For this discussion we’ve chosen three areas for review. For investors, this is a thumbnail of the “big picture” of the US economy. They are Jobs and Wages, Corporate Profits and Housing.
Jobs and Wages
The February Jobs Report was a real whopper. The economy created 295,000 new jobs in February. The estimate had been for 235,000. This is on top of 239,000 new jobs in January. A breakdown by sectors is as follows:
Food Service and Restaurants 59,000
Professional and Business 51,000
Health Care 24,000
The one drag in the report was Hourly Wages. They rose only .1%, down from .5% in January. For the year hourly wages rose just 2%. Labor Force Participation was 62.8%
As you can see the elephant on the table is wage growth. People can’t spend more if they don’t have more money. The only bright spot here is lower gas prices. However, they have jumped considerably in the past few weeks.
Against the backdrop of accelerating job growth we are seeing US Corporate Profits take a dive for the second quarter in a row. This is a tricky number. Analysts give their estimates of corporate profits. Then the actual profit is either higher of lower than estimates. The headline last quarter was that 76% of the companies in the S & P Index either met or exceeded estimates.
However, here’s the trick. Analysts have lowered their estimates of corporate profits for the second quarter in a row. Analysts are predicting a drop in corporate profits for the first quarter of 4.6% from a year ago for S & P companies.. The second quarter is forecast to fall 1.5%. This the first back to back decline since 2009.
Chris Watling of Long View Economics said: “Since the early nineties, the only times that earnings per share have fallen in the US have been at the onset of recessions, in 2000 to 2002 and 2007 to 2009.”
Here‘s a summary from the Cabo San Lucas Housing Report for January and February 2015:
The Index fell to 49.9 from 52.6.A closing below 50 indicates contraction.
Residential (closed transaction) were down 8%.
Residential listings under contract fell 69%.
Condos were hit hard down 58% to $4,997,000. The average sales price was down 29% to $429,000.
Single Family Units were down 18% to $10,796,000.
Single Family average sales price was down 41% to $336,000.
Total Sales Volume for the first two months of 2015 fell 38% to $15,793,000.
The obvious question is: Where are we headed? The jobs report suggests that we will see an expansion in the second half of this year. However we do have some real concerns about corporate profits and housing. Both are weaker than expected.