Let the economic data flow

A couple of important economic stats came in today, our old friends: consumer spending and jobless claims. Here’s how the data shook out…

* Consumer Spending
August consumer spending was up a robust 1.3% – the highest spending surge in 19 months. This increase was in excess of an increase in personal income of 0.2%. The rise in spending is being attributed to both a robust “cash for clunkers” spend and back-to-school sales.

* Interesting points: This is the first time in a long time that Americans have spent more than they earned. The trend since May has been consumers de-leveraging their personal balance sheets – something I feel is very healthy for the economy long-term. Doubtless, this will be an interesting trend to track going forward to gauge whether or not U.S. consumer behavior has permanently changed, or whether we witnessing a breather in excess.

* Jobless Claims

Initial jobless claims were up 17,000 last week. Remember though that this data is erratic so a smoothed number is a better indicator of trend. The four week average was down 6,250. Separately, and more importantly, claims where folks have been unemployed for more than a week fell by 70,000 to 6.1 million folks last week.

* Interesting points: Note the rounded numbers…17K and 70K. This is always a sign of estimated, not actual data. Also, it looks like hiring is finally taking place as the longer term unemployed are finally finding work. Again, this will be an important trend to track.

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* ISM Manufacturing Index
Separately, manufacturing was down ever so slightly in September. The ISM manufacturing index was down to 52.6 from 52.9 in August.

* Interesting points: Pundits, not yours truly, are saying this is the reason for the big decline in the financial markets today (at the time of this writing the DJIA is down 150+ points). I doubt this statistic in isolation truly represents the reason folks are selling. After all, any ISM reading over 50 indicates expansion. I am guessing that all three of the economic statistics we have discussed are reasons for selling. But more importantly I feel is that the negotiations with Iran over its nuclear program begin today and they are not expected to go well. That may result in military action. But who really knows why the markets sell off or rise on most days?

* Conclusion: As third quarter earnings reports roll in I am fairly certain that there will be positive news and positive investment returns.

Jason