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Investing Specialists

A Sigh of Relief

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Last week's indicators provided welcome relief from the prior week's disappointing manufacturing and housing data. Last week I warned that it would be the consumer that would have to drive the economy forward over the next couple of months. Having the consumer in the driver's seat isn't necessarily a bad thing. It is just a lot harder to predict than the manufacturing sector, which has longer lead times and a plethora of reliable early indicators.

Consumers, on the other hand, are more fickle with their spending habits, making them more challenging to predict from week to week. This past week, consumer-related news was outstanding. Incomes and investment portfolios have shown enhanced gusto recently. Those factors, combined with continuing declines in the number of layoffs, are stoking the embers for improved consumer spending, and a better-than-anticipated holiday season.

The most exciting news this week for the consumer was a dramatic decline in the number of new initial unemployment claims, as well as the number of continuing claims. Initial claims for the week fell to 466,000 (496,500 on a four-week moving average basis). One has to go back to the fall of 2008 to find a lower number. I should warn that the seasonal adjustment factor this week was quite large, so it wouldn't surprise me to see the one-week number bounce back a little next week. However, I expect initial claims to remain below the 500,000 level.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.