subject: Light Week for Earnings, Data [print this page] Light Week for Earnings, Data Light Week for Earnings, Data
Earnings Preview 3/06/11
The fourth quarter earnings season is almost over. A total of just 252 firms are due to report and only 5 are S&P 500 firms. A great many of next week's reporters are retailers, many of which have fiscal years than end in January, not December.
So far the earnings season seems to be going well. With 98.2% of the S&P 500 reports in, total net income is up 30.5% over a year ago. The firms reporting this week include: Brown Foreman (BF.B), H&R Block (HRB), National Semiconductor (NSM), Urban Outfitters (URBN) and Pall Corp. (PLL).
It will be a relatively light week for economic data. We will get data on Consumer Credit, the Deficits, both Trade and Budget, Retail sales and Inventories, as well as the University of Michigan Consumer Sentiment Survey. While some of those numbers can move the markets, it seems likely that National Budget issues and International events are the most likely drivers of the market this week.
Monday
* Consumer Credit (not including mortgage debt) is expected to have expanded by $3.3 billion, on top of a $6.1 billion increase in December. That would be the third rise in a row after a long, and unusual string of declines as consumers have tried to repair their balance sheets. Most of the increase will probably come from non-revolving debt, such as car loans, rather than from increases in credit card debt.
Tuesday
* No major economic reports are due out. However, there will be a Senate Confirmation hearing for Peter Diamond, last year's Nobel Prize winner for Economics, to join the Federal Reserve Board.
Wednesday
* Wholesale Inventories are expected to have increased by 1.0% in January, matching the 1.0% increase in December.
Thursday
* Weekly initial claims for unemployment insurance come out. After being extremely erratic over the holidays, they have started to fall significantly. Last week they fell by 20,000 in the last week, to 368,000, the lowest level since May 2008. The consensus is for them to bounce to 382,000. Given how volatile initial claims have been, that seems to very possible. Still, even a level of 382,000 seems pretty good compared to the experience of the last few years, and would mean that the four-week moving average is still declining. After a huge downtrend from mid-April through the end of 2009, initial claims were locked in a tight "trading range." We now appear to have broken out of that trading range to the downside. This could well indicate that the economy is about to start producing a significant number of new jobs.
* Continuing claims have also in a downtrend of late, but the road down has been bumpy. Last week they fell by 59,000 to 3.774 million. That is down 938,000 from a year ago. A further decline to 3.750 million is expected. Some of the longer-term decline due to people simply exhausting their regular state benefits which run out after 26 weeks. Federally paid extended claims rose by 57,000 to 4.504 million, and are down by 1.232 million over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits, currently at 9.236 million, which is up 74,000 from last week. The total number of people getting benefits is now 2.301 million below year ago levels. What is not known is how many people have left the extended claims via the road to prosperity, finding a new job, and how many have left on the road to poverty, having simply exhausted even the extended benefits. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
* The Trade deficit is expected to have increased to $41.5 billion in January from $40.6 million in December. That is very bad news since a rising trade deficit slows economic growth. Most of the increase is likely to have come from higher oil prices. The non-oil trade deficit probably declined due to the effects of a weaker dollar. Oil, however, is responsible for more than half of our total trade deficit, and higher oil prices mean a higher trade deficit. It is the trade deficit, not the budget deficit, that is responsible for our increasing indebtedness to the rest of the world and is a much more serious economic problem, particularly in the short term.
* The Budget deficit is expected to have declined to $196 billion in February from $220.9 billion a year ago. The budget deficit numbers are extremely seasonal, but are not seasonally adjusted. Thus month to month comparisons are worse than useless. February is traditionally a large budget deficit month.
Friday
* Retail Sales are expected to have increased by 1.0% (seasonally adjusted) in February after rising just 0.3% in January. This is a broad measure of retail sales, not just activity at the malls. Much of the increase probably came from better auto sales, which we learned last week were running at a 13.4 million annual pace up from a 12.7 million pace in January. Excluding autos, retail sales are expected to have been up 0.6%. While the numbers are adjusted for seasonal variations like the number of shopping days, they are not adjusted for inflation. As such, some of the "strength" in retail sales will probably come from gas stations, and not due to a sudden rise in the number of people eating hot dogs off the rollers and drinking 44oz fountain drinks.
* The University of Michigan Consumer sentiment index is expected to dip to 76.5 from 77.5. That is well off the bottom, but we probably need to see it get much closer to 60 to indicate the economy is back to being healthy. I am not a big fan of this number, or the related Consumer Confidence number. With the Consumer representing over 70% of the economy, theoretically these numbers should be vital. The problem is that what consumers say in these surveys, and what they subsequently do, are often very different.
Potential Positive or Negative Surprises
Historically the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises.
Similarly a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.
Given the small number of major companies reporting this week to choose from, I am skipping this section. In the Earnings calendar below, $999.00 should be read as N.A.
