economic forecast
Market Decline Starts: The Stocks That Will Fall the Most
By Sasha Cekerevac for Investment Contrarians | Feb 26, 2013
One of the most important criteria for getting the economy back to optimal speed is for consumer confidence to begin accelerating. Much of a developed nation’s economy is based on consumer spending.
When making an economic forecast for a developed nation, taking into account shifts in consumer spending is extremely important. With new information raising doubts that consumer confidence will rise anytime soon, a more cautious economic forecast is necessary.
According to the Bloomberg Consumer Comfort Index, in February, the difference between positive expectations and negative expectations by consumers remained at –7 from the previous month. While current conditions by consumers in the Comfort Index rose during the week of February 17 to –33.4 from –35.9 the previous week, clearly, there is still a substantial amount of negativity when it comes to consumer confidence. (Source: Smialek, J., “Consumers in the US hold negative economic Outlook as fuel climbs,” Bloomberg, February 21, 2013.)
The composite reading in the Comfort Index shows a weak yet stable belief in the underlying economy. Interestingly, men have turned slightly more optimistic, with 34% reporting an improvement in the economy for February, versus only 24% in January. However, women turned more pessimistic in their opinion, with only 26% stating the economy is improving in February, versus 32% in January. Overall, the data points to continued weakness in consumer confidence.
I believe that several factors are causing this reduced level of consumer confidence. The obvious factor is the two percent increase in the payroll tax for Social Security. My economic forecast has to incorporate the lower level of take-home pay, especially for the middle- and lower-income earners…. Read More
Are You Picking the Right Investment for Higher Oil Prices?
By Sasha Cekerevac for Investment Contrarians | Feb 12, 2013
One of the most difficult aspects of investing is adjusting one’s economic forecast to the dynamic and ever-changing global economic environment. An investor cannot be so dogmatic that they are unable to shift their economic forecast as new data come out.
For much of the second half of last year, there were many fears that China was going to encounter a significant slowdown, and many analysts had been lowering their economic forecast for that nation. Recent data, however, show that perhaps the Chinese economy might be able to rebound, at least in the short term.
China recently reported that exports grew a better-than-expected 25.0% and imports rose a substantial 28.8% from the year-ago period in January. This was in addition to much higher credit issuance, and an inflation rate that was quite subdued at only two percent. (Source: “China trade tops forecasts in holiday distorted month,” Bloomberg BusinessWeek, February 8, 2013.)
There are some issues with the data: the 2012 Chinese New Year began on January 23 and, in 2013, the Chinese New Year began on February 10; this shift in holidays, which result in business closures, needs to be taken into account when making year-over-year comparisons. However, analysts calculating their economic forecast did take this into consideration, predicting exports of 17.5% and imports of 23.5%, according to the median estimates taken by Bloomberg News. (Source: Ibid.)
If the Chinese economy continues to outperform, not only will analysts increase their economic forecast for the remainder of the year, but certain sectors will also benefit, including oil prices.
International oil prices are set based on Brent crude, as opposed to American-produced … Read More
Confusing Data from China; What’s Really Happening?
By Sasha Cekerevac for Investment Contrarians | Jan 21, 2013
Recently, we have heard and seen some data stating that the Chinese economy is beginning to rebound. Many analysts have started to raise their economic forecast for the Chinese economy in 2013.
One of the difficult aspects when calculating an economic forecast for the Chinese economy is that much of the official data from China are questionable.
While recent data have shown that the Chinese economy has begun re-accelerating during the fourth quarter 2012, new information raises some questions.
The China Beige Book (CBB) International states that, in its analysis of the fourth quarter, it sees a significant decline in corporate loans. As the CBB states, its editors were “shocked” that new loans accounted for less than 20% of the total lending. (Source: Harjani, A., “The China Beige Book Has Some ‘Shocking’ Data,” CNBC, January 16, 2013.)
The CBB interviews over 2,000 business executives across the country to come up with its survey results. Another worrying sign in the report for the Chinese economy that will certainly cloud any economic forecast is that the percentage of surveyed companies borrowing money continues to decline, even though interest rates have been cut by the People’s Bank of China.
While the Chinese economy is trying to become more consumer-oriented and domestic, exports still play a very large role. With the buildup in their inventory, manufacturing firms appear to be anticipating growth worldwide for 2013.
If this doesn’t occur, the Chinese economy could be vulnerable to a significant pullback. The difficulty in all of this analysis when trying to calculate an economic forecast is that so many variables and so much questionable data make … Read More
Why the Fiscal Cliff Deal Is Pathetic
By Sasha Cekerevac for Investment Contrarians | Jan 3, 2013
When it comes to making an economic forecast for the U.S. economy in 2013, a huge stumbling block was the uncertainty prior to the deal to avert the fiscal cliff. The just-announced new deal to avert the fiscal cliff is absolutely pathetic and will not accomplish what many were hoping for; a comprehensive long-term deal to lower the U.S. budget deficit and create an environment that will foster long-term gross domestic product (GDP) growth.
The level of uncertainty has recently started to impact consumers. The impact on consumer confidence was noted during the latest Conference Board Index in which consumer confidence fell six percent to 65.1 in December from November, the lowest since August 2012. (Source: “The Conference Board Consumer Confidence Index® Declines,” The Conference Board, December 27, 2012.)
GDP growth is heavily dependent on consumer confidence. Since the majority of the U.S. GDP growth is based on consumer spending, any pullback in consumer confidence is a worrying sign, with its potential for lowering an economic forecast for 2013.
An interesting dynamic was that consumers assessed that current conditions improved in December from the previous month. Business conditions rose to 17.1% from 14.6% the previous month; however, expectations for business conditions over the next six months declined to 17.6% from 21.3%.
This might seem contradictory, but it really shows that while the current economy is somewhat improving, the political grandstanding and ineptitude to avert the fiscal cliff have been increasing concerns for the future GDP growth of the American economy. This type of uncertainty will certainly put a damper on any economic forecast.
This new compromised deal has plenty of … Read More
Are You Making More Money? Data Say Not Likely
By Sasha Cekerevac for Investment Contrarians | Nov 30, 2012
When making an economic forecast, whether it is for the global economy or a specific nation, one of the most fundamental inputs is the growth of wages for the average citizen. Since consumer demand supports so much of the modern economy, especially in the U.S., a lack of wage growth will certainly filter into a weaker overall economy.
While we have seen some improvements in the number of jobs created this past year, clearly this is not enough, as we have not seen any improvement in wages. My economic forecast for America in 2013 will continue to be muted, as real wages are actually declining, in addition to the global economy being extremely weak.
I was looking at the data from the Bureau of Labor Statistics and it reports that real wages, which take inflation into account, have fallen every month since February 2011 except one, in which real wages were flat. Over this period, my economic forecast for America continued to be lower than consensus, because there was no sustained increase in income. Without real wages growing, the wealth of the average citizen continues to decline.
America certainly cannot look to the global economy to help pull us out of the trough. In fact, a recent economic forecast on the global economy by the Organization for Economic Cooperation and Development (OECD) has also shown that it, too, has reduced expectations for growth.
The OECD now has an economic forecast that the global economy will grow 2.9% this year, versus an earlier estimate of 3.4%. The OECD has also drastically reduced next year’s economic forecast for the global economy to … Read More
How the Eurozone Could Hurt the American Economy in 2013
By Sasha Cekerevac for Investment Contrarians | Nov 23, 2012
As 2012 is winding down, many analysts and investors are trying to determine their economic forecast for the fourth quarter and fiscal 2013. While America has its own serious issues, let’s not forget that the eurozone could become a huge problem for many nations in 2013.
One thing that has been constant regarding the eurozone is that many analysts who have come out with an economic forecast have consistently been revising it downward. It’s extremely difficult to properly come up with a framework that is viable over the long term if the economic forecast one is using is flawed.
Another piece of data that might help shed light on the fourth-quarter economic forecast for the eurozone was the recently released business survey conducted by research firm Markit. The Purchasing Managers’ Index (PMI) for the service sector was 45.7 this month, far below the 50.0 level that separates growth and contraction. Not only has this indicator shown contraction for 10 straight months, but the service industry is accelerating its decline, too. (Source: “Eurozone Faces Deepest Downturn Since Early 2009,” Reuters, November 22, 2012.)
While the manufacturing PMI came in slightly above expectations, it also was below 50.0, which denotes contraction in that sector for the eurozone. Many analysts use this key piece of data in their economic forecast for not only the fourth quarter, but also next year. When creating an economic forecast, trends are important. We continue to see that declines are not only consistent, but they are also getting worse within the eurozone.
However, making an economic forecast for the eurozone cannot be done simply by one data point. … Read More
Obama Administration Suppressing Bad News Ahead of the Election?
By Sasha Cekerevac for Investment Contrarians | Aug 10, 2012
The economic forecast continues to be gloomy for America, with little positive news expected, making any investment strategy that much more difficult to formulate. On top of the worldwide economic slowdown, America is facing massive budget cuts that are due to hit January 2, 2013—a tornado to in the economic forecast. This includes approximately $55.0 billion in automatic cuts for the defense market sector.
This is not new, as various corporations have continually attempted to make the public aware that without the political will to fix the fiscal problem and prevent these budget cuts from being enacted, America’s gross domestic product (GDP) will be severely hit next year, depressing the economic forecast even more. I wrote about this in the article “Lockheed Martin Warns of Impending Crisis Unless Action’s Taken,” as the defense market sector is a huge target.
With such a negative economic forecast, one would think that politicians would attempt to work together to avert this disaster. However, it appears that politicians are only interested in deflecting negative criticism away from themselves.
The president of Pratt and Whitney, a subsidiary of United Technologies Corporation (NYSE/UTX), David Hess, stated that because of the company’s economic forecast and the looming budget cuts, it is about to issue notifications to employees that might be laid off. This is due to a provision of a law called the WARN Act, which requires employers to notify employees at least 60 days prior to any plant closures or layouts.
Pratt and Whitney is only following the letter of the law. However, the U.S. Labor Department stated that companies in the defense market sector should … Read More
Why “Don’t Bet Against the Fed” Is Now Truer Than Ever
By Sasha Cekerevac for Investment Contrarians | Aug 8, 2012
With the recent Federal Reserve meeting just concluded with no change in monetary stimulus policy, all eyes are focused on its September meeting. As the economic data continues to deteriorate, this is having a negative impact on the economic forecast for the future. The Federal Reserve is closely monitoring the situation and, with a lack of strong, positive news, I believe that additional monetary stimulus will occur by the end of the year to avert a continuing diminished economic forecast for the future.
Recent comments by Eric Rosengren, who is the Federal Reserve Bank of Boston President, will surely reignite additional expectations of monetary stimulus, as he commented that the central bank should enact open-ended quantitative easing. He also suggested the Federal Reserve should boost this monetary stimulus program by substantial magnitude.
The economic forecast for America continues to be subpar. Obviously, this Federal Reserve Bank president and others are voicing the opinion that the current monetary stimulus policy is not enough to decrease the unemployment rate and increase the growth rate of the country. The wording that open-ended quantitative easing should be the new monetary stimulus policy initiative is quite a change for Federal Reserve standards.
This policy initiative would be quite bullish for certain markets, such as gold. With the payroll data last week not being horrible, many were led to believe that Federal Reserve policy might be on hold. Even with some doubts, gold has held up quite well. Gold stocks have also performed reasonably well, but I believe there is more to come.
As many analysts will continue to decrease their economic forecast for the American … Read More
UPS Delivers Frightening Forecast
By Sasha Cekerevac for Investment Contrarians | Jul 26, 2012
There are many interesting points that can be taken from a quarterly corporate earnings report. I find it’s quite interesting to read the corporate earnings release from United Parcel Service, Inc. (NYSE/UPS), because its business is spread among so many sectors and nations around the world that it’s a good gauge of where the global economy currently is and what the company’s economic forecast holds for the future. Unfortunately, the latest economic forecast from UPS’s corporate earnings release was quite scary.
Compared to most economists, UPS is expecting weaker global trade within a poor economic forecast. Because of this weak economic forecast, UPS is undergoing reductions in its business and lowering guidance. Within its corporate earnings release, UPS states that customers are increasingly worried about the economy. This is causing other firms to ratchet down their own economic forecast models for the remainder of the year. For the second quarter, UPS did miss on both topline and corporate earnings expectations as a result of weakening demand by clients. UPS has an economic forecast for the American economy of just one percent. That is far below the economic forecast for many economists, as most have a range of 1.5% to two percent.
Within the corporate earnings release, one bright spot was higher shipments from online retailers. But this increase was not enough to offset the decrease in freight shipping, which is the method large businesses use when ordering products. Obviously, someone buying one book from an online retailer can’t match the revenue and corporate earnings that UPS gains from a manufacturer shipping 1,000 units.
Asian growth is slowing as well, and … Read More
Further Signs of Economic Decline
By Sasha Cekerevac for Investment Contrarians | Jun 25, 2012
When it comes to economic forecasts, there are many metrics, some more useful than others, to gauge the strength or weakness of the global economy. A lot of indicators used when making economic forecasts are backward-looking, meaning they tell us what happened in the global economy, not what will happen. There are very few forward-looking indicators, but one that I like to incorporate when making my economic forecasts is to analyze what certain corporations are actually saying about the global economy. One of the best companies to research regarding the global economy is FedEx Corporation (NYSE/FDX).
FedEx tracks shipments of packages extremely closely. This is highly correlated with the global economy, as it has business in most major business centers. As businesses improve, more packages are sent. Not only is total volume important to look at, but so is the split of volume in terms of high-value overnight shipments versus slower and lower-priced shipments. What we are currently seeing in FedEx’s latest statement is that the overall global economy appears to be weaker than many have estimated in their economic forecasts. For the fourth quarter 2012, which ended May 31, FedEx stated that U.S. package shipments were 4.9% fewer than a year ago. Operating profit margins also declined from 8.4% in the year prior period to 7.8% for the quarter.
The company also stated that its assumptions in its economic forecasts are relatively decent at 2.2%, with the caveat that the firm expects a successful conclusion to the European debt crisis. The company also is incorporating a deal to keep the fiscal cliff from being enacted. These are two big … Read More
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