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This past week equities were mixed and Treasury yields eased as traders took the view that the barrage of economic news was a net negative. That view is open to debate as many indicators were quite healthy and the negative news did not always make sense. And incidentally, the biggest news for markets came from the Securities and Exchange Commission.
 Equities got the earnings season off to a good start this week—until the SEC weighed in on Friday. But first, stocks posted modest gains on Monday against the academic headwinds of an announcement by the NBER (the business cycle dating group) that it was not ready to declare an end to the most recent recession even though most economists believe recovery for the U.S. began in mid-2009. Providing some lift was relief over Euro-zone countries and the IMF agreeing to provide loans to Greece to help that country avoid default on sovereign debt. While Greece is actually small fry in the sea of economies, it is seen as a warning of what could come for other debt-burdened countries, including Portugal, Ireland, Italy, and Spain. The Dow on Monday closed above 11,000—an important psychological milestone.
Equities posted another modest gain on Tuesday even though Alcoa disappointed slightly after close on Monday. Less prominent companies, however, were posting mostly better than expected earnings. Also, the U.S. trade deficit widened but the gain in imports was seen as portending an expected gain in domestic demand.
The surge for the week was on Wednesday on both favorable economic news and earnings. Retail sales were strong for March and quarterly numbers from Intel (after close Tuesday) and JP Morgan Chase boosted equities. In tandem, financials and techs led the advance for the day. Favorable comments from Fed Chairman Bernanke on the economic outlook and also an improved view of the economy from the Beige Book also helped stocks advance.
On Thursday, stocks made further gains, albeit modest, despite an unexpected jump in initial jobless claims. Some of the spike was seen as technical and related to some states catching up on backlogs of applications. Strong numbers from the Philly Fed and New York Fed on manufacturing provided most of the lift. Also, analysts finally figured out that a below expectations gain in industrial production was due to a sharp drop in utilities output which overshadowed an important gain in manufacturing output.
There were strong cross currents at week end—but clearly net negative for equities. Google topped published expectations after Thursday's close but fell short of some whisper numbers. General Electric reported earnings that beat Street expectations, but sales fell short of forecasts. Bank of America handily beat forecasts on earnings for the first quarter. Housing starts were up more than expected. You would think an end of week boost in stocks was a certainty. Through Thursday's close, all major indexes were up significantly. But trumping most of the good news was a drop in consumer sentiment and an announcement that Goldman Sachs is being charged by the SEC with fraud over its subprime products. Financials led stocks down for the day and indexes were mostly up for the week despite the downdraft on Friday.
Equities were mostly up this past week. The Dow was up 0.2 percent; the Nasdaq, up 1.1 percent; and the Russell 2000, up 1.7 percent. However, the S&P 500 dipped 0.2 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 5.7 percent; the S&P 500, up 6.9 percent; the Nasdaq, up 9.3 percent; and the Russell 2000, up 14.3 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields have been soft all week with the exception of some firming on Wednesday. Rates are down significantly net for the period after a sharp drop on Friday.
At the start of the week, investors snapped up high yield Treasuries with prices seen as attractive. Rates mostly dipped on Tuesday on news of a weakening in a confidence index of small businesses. Later in the week, yields were bumped down by a jump in initial jobless claims, a disappointing headline number for industrial production, and a fall back in consumer sentiment. Also, news of fraud charges against Goldman Sachs created sizeable flight to safety to Treasuries at week end.
The mid-week bump in yields was due to strong economic reports, including retail sales, business inventories, and Beige Book. Somewhat offsetting were favorable CPI inflation numbers. Further adding to upward pressure on rates was a flow of funds into equities as stocks surged for the day and also favorable comments on the economy from Fed Chairman Bernanke, speaking before s congressional committee.
Overall, yields were down due to perceived net negative economic indicators news, low inflation numbers, on the belief that prices were attractive (yields high) given the current inflation environment, and flight to safety set in on news about Goldman.
For this past week Treasury rates were mostly down as follows: the 2-year note, down 11 basis points; the 5-year note, down 15 basis points; the 7-year note, down 14 basis points; the 10-year bond, down 11 basis points; and the 30-year bond, down 7 basis points. The 3-month T-bill was unchanged.
 Oil prices were a little more volatile than usual this week. The first big move was a $1.68 per barrel spike in spot prices for West Texas Intermediate. This was due to a drop in crude oil supplies and strong economic data—including retail sales, business inventories, and Beige Book. But prices dropped significantly on Thursday and Friday. Crude dipped almost a buck and a quarter on Thursday on a jump in initial jobless claims and a rise in the dollar. On Friday, fraud charges against Goldman Sachs rattled the markets and money moved to safer investments, notably Treasuries. Also, oil eased on a stronger dollar as concern renewed about the rescue for Greece as some in Germany indicated they may go to court over a possible bailout.
Net for the week, spot prices for West Texas Intermediate dropped $1.73 per barrel to settle at $82.90.
The markets had to digest a feast of economic news this past week. While many saw the overall news as a net negative, there were quite a number of positive reports, suggesting that the recovery is strengthening.
 A key holdback for the recovery has been a cautious consumer sector. That may have changed based on the last several retail sales reports. The consumer sector is starting to pull its weight in the recovery and may even be turning into an engine of growth. Overall retail sales in March jumped 1.6 percent after gaining 0.5 percent in February. Sales have posted healthy increases three months in a row and in five of the last six months.
For the latest, motor vehicles provided a huge contribution, spiking 6.7 percent after dipping 1.9 percent in February. But even excluding autos, sales in March posted another healthy boost, rising 0.6 percent which came after a 1.0 percent surge in February. The increase was not related to changes in gasoline prices as sales excluding autos and gasoline improved by 0.7 percent, following a 1.1 percent increase in February. Component gains in March were widespread.
The bottom line is that consumers must be more confident about the economic outlook—otherwise, they would still be holding onto their cash. We likely are seeing the release of pent up demand due to lessened anxiety about the economy and the job picture. However, the latest consumer sentiment number is contradictory to the recent sales trend.
 Analysts were scratching their heads this past Friday morning when the Reuters/University of Michigan consumer sentiment fell notably for the mid-April reading instead of edging upward as expected. The consumer sentiment index fell to 69.5 from 73.6 in March. Deterioration was worse in the expectations index (the leading component), which fell 5.6 points to 62.3 and a level last seen mid-year last year when payrolls were still declining severely. Current conditions also fell, down 1.7 points to 80.7.
This report raised lots of questions. First, why are consumers spending as strongly as they are if they are so worried about the economic outlook' Is it really something else that hurt sentiment—perhaps delayed reaction to passage of health care reform (for those opposed)' Perhaps it was greater than normal angst heading into the income tax deadline with worry about higher taxes in the future due to high federal deficits' Or was the decline in sentiment due to actual economic events—such as recent increases in initial jobless claims that may be real rather than a technical catch up on paperwork. With the unexpected drop in the mid-April reading, the next numbers at the end of the month both for sentiment and the Conference Board’s confidence index will get heightened market attention.
 Inflation news was supportive of both stronger equities and lower bond yields as consumer price inflation was essentially nonexistent for March. Overall CPI inflation for March nudged up to 0.1 percent from no change the prior month. Core CPI inflation, however, eased to no change from up 0.1 percent in March. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs.
 The year-ago trend in inflation is still suffering from the impact of higher energy costs, however. Year-on-year, overall CPI inflation firmed to 2.4 percent (seasonally adjusted) from 2.2 percent in February. But the core pace continues on a downward trend. The year-on-year core rate edged down in March to 1.2 percent from 1.3 percent the month before.
A big part of the story behind the weakness in core CPI inflation has been the shelter subcomponent. On a month ago basis, the shelter index has been flat or negative for an unheard of seven months in a row. Shelter costs fell 0.1 percent in March after no change in February and a 0.5 percent fall in January.
 On a year-ago basis, shelter costs were down 0.5 percent in March—helping bring down the overall core rate. Shelter makes up 32.3 percent of the overall CPI and 41.6 percent of the core index. Weakness in shelter has been led by lodging while away from home which is down 3.0 percent for the last 12 months. Over the same period, rent is up 0.2 percent—a still very, very soft number. Overall, shelter cost inflation has been pushed down by the recent recession. Rents are sluggish due to high unemployment and high vacancy rates for apartments. Lodging has been hurt by discounting by hotels and resorts.
 For now, housing is improving. Housing in March strengthened from snow bound February—with permits pointing toward even better improvement than starts. Housing starts in March rebounded 1.6 percent after a snow storm damped 1.1 percent rise in February. The March annualized pace of 0.626 million units was up 20.2 percent on a year-ago basis. The boost in March was led by an 18.8 percent jump in multifamily starts, following a 21.6 percent fall in February. The single-family component edged down 0.9 percent after a 5.7 percent boost the month before.
 The impact of weather on February’s numbers clearly was seen again in March as the latest surge was entirely from a rebound in the South which was battered by snow storms the prior month.
Permits were even more positive, jumping 7.5 percent, following a 2.4 percent advance in February. The March pace of 0.685 million units annualized was up 34.1 percent on a year-ago basis.
One alleged flaw in the March report was that the boost in starts was entirely in the multifamily component. By percentage, there was a similar pattern in permits as multifamily permits jumped 15.4 percent and single-family permits rose a lesser but still healthy 5.4 percent. But by absolute numbers, single-family permits were stronger—it’s the much larger component. Single-family permits rose by 29,000 while the multifamily component was up 21,000. In fact, single-family permits have been on a steady uptrend since early 2009 while the more volatile multifamily component has barely trended above the recession trough.
Although the starts and permit numbers indicate that housing is not slipping back into recession, the next few months will be critical for determining the health of this sector after it loses support from expiring special tax credits at the end of April. But apparently homebuilders are modestly optimistic, given the boost in permits.
 Hair trigger traders jumped ahead of the big story from the latest industrial production report. Yes, the meager rise in March industrial production was well below expectation. But below the headline, the shortfall was utilities related. Overall industrial production in March edged up 0.1 percent after gaining 0.3 percent the month before.
The real news in the report was that the manufacturing component was notably strong with a 0.9 percent jump, after advancing 0.2 percent in February. For the other major components, utilities output plunged 6.4 percent after no change the prior month while mining production increased 2.3 percent after rising 1.7 percent in February.
The second big story was how widespread manufacturing strength was—it was not a fluky surge. Within manufacturing, durables output jumped a sharp 1.4 percent with all major categories advancing, most over 1 percent. Nondurables production increased 0.5 percent in March, led by a 3.0 percent jump in petroleum & coal products and by a 1.7 percent gain in rubber products. Other increases were more moderate but still widespread. The bottom line is that the deeper you dig below the headline, the stronger manufacturing looks.
 Manufacturing appears to be gaining momentum in April, according to two key Fed surveys. The Philadelphia Fed’s April manufacturing survey showed its general business activity index up 1.3 points to 20.2—well above the breakeven point of zero and signaling an increasing rate of month-to-month growth. Other indexes point to favorable numbers ahead. The new orders index rose more than 4-1/2 points to 13.9. The region's manufacturers appear to be in restocking mode as the inventories index jumped to plus 2.0 from March's minus 11.0 with the latter indicating an inventory draw. The employment index remained mildly positive.
The New York Fed’s manufacturing survey also is showing significant improvement as the Empire State general business conditions index jumped 9 points in April to 31.86 signaling strong month-to-month growth. April increases were broad-based within the report. Forward momentum looks good as the new orders index increased to 29.49 from 25.43 in March. As with the Philly report, New York manufacturers also are building stocks as the inventory index rose to 11.4, a record high. The index has moved up nearly 30 points since January and has now been positive for two consecutive months.
The bottom line is that the latest surveys of manufacturers indicate that this sector remains the key engine of growth for the economy.
 Businesses shed inventories at a breath-taking pace during latter 2008 and most of 2009. That is starting to turn around based on recent inventory reports. Business inventories rose 0.5 percent in February with all three components pitching in: retailers up 0.3 percent, manufacturers up 0.5 percent, wholesalers up 0.6 percent. Overall inventories have now risen in four of the last five months.
The latest robust retail sales report indicates that businesses may need to build inventories at a faster pace as stocks to sales have been declining. This is good news for production. Also, the restocking reflects increased confidence in the economy by businesses. This increases the likelihood of new hiring.
 The U.S. trade deficit worsened in February. Normally, one might take that as bad news. But with the world economy still in recovery, the key point is to see growth in overall trade. During 2008 and early 2009 both exports and imports contracted. We saw a decline in exports and imports in January and some saw that as a slowing in global demand. The February trade report, however, suggests that businesses are a little more optimistic about domestic demand. The U.S. trade gap widened in February on both oil and non-oil imports. The trade deficit for February grew to $39.7 billion from a revised $37.0 billion the month before.
 The worsening in the trade deficit was led by the nonpetroleum balance which widened to $27.2 billion from $25.6 billion in January. The petroleum deficit came in at $22.9 billion, compared to $22.5 billion in January.
The source of the gain in nonpetroleum goods should give comfort to those worrying about business confidence in the consumer sector. The boost in imports primarily was the result of a $1.1 billion jump in consumer goods, followed by a $1.0 billion gain in industrial supplies (largely oil). But imports of capital goods excluding autos posted a moderate gain of $0.4 billion. Overall, businesses appear to be in a restocking mood—which is favorable to the economy. Exports were up only marginally with major components mixed.
While the markets did not react net positively to economic news this past week, the balance of data was overwhelmingly positive. Yes, you had to dig into detail for the industrial production and international trade reports. And the Goldman Sachs news was a downer if you were over weighted in financials. But the economy clearly is picking up steam even as inflation remains subdued.
The two traditional market movers out this week are the producer price index on Thursday and durables orders posted on Friday. But existing and new homes sales, out Thursday and Friday respectively, will get heightened attention.
The Conference Board's index of leading indicators in February inched up 0.1 percent, following a 0.3 percent gain the month before. These two numbers were less robust than the sharp increases seen the prior seven months. As has been the case for some time, the yield spread between the overnight funds rate and the 10-year yield was by far the report's most positive element, followed by money supply.
Leading indicators Consensus Forecast for March 10: +1.1 percent
Range: +0.4 to +1.3 percent
The producer price index for February dropped 0.6 percent after spiking 1.4 percent in January. At the core level, the PPI inflation rate eased to a 0.1 percent rise from a 0.3 percent gain in January. The drop in the headline PPI was led by a 2.9 percent decrease in energy costs after 5.1 percent surge in January. Looking ahead, energy may dip again as spot prices for crude oil rose less in March than seasonally typical for the month—meaning, it declined about 3.2 percent on a seasonally adjusted basis. However, regional shortages of some fruits and vegetables may put upward pressure on the food component of the PPI. Analysts may be relying too heavily on unadjusted oil prices given their relatively strong forecast for the headline PPI.
PPI Consensus Forecast for March 10: +0.4 percent
Range: 0.0 to +0.8 percent
PPI ex food & energy Consensus Forecast for March 10: +0.1 percent
Range: 0.0 to +0.2 percent
Initial jobless claims for the week ended April 10 jumped 24,000 to 484,000 for a second increase in a row. The Labor Department attributed the rise in claims not to economic factors but to continuing administrative snags as offices catch up with claims during the shortened Easter week and, in California, for the Cesar Chavez holiday.
Jobless Claims Consensus Forecast for 4/17/10: 460,000
Range: 440,000 to 465,000
Existing home sales in February fell 0.6 percent to a sluggish pace of a 5.02 million units annualized. In turn, months’ supply jumped to 8.6 months from 7.8 in January and 7.2 in December. Despite the supply overhang, the median sales price came in at $165,100, up 0.1 percent from February on a month-ago basis and down 1.8 percent on a year-ago basis. Existing sales should get some lift both in March and April from the pending expiration of homebuyer tax credits at the end of April.
Existing home sales Consensus Forecast for March 10: 5.250 million-unit rate
Range: 5.200 to 5.450 million-unit rate
Durable goods orders in February gained a revised 0.9 percent, following a revised 3.8 percent surge in January. New orders have been up three months in a row. Excluding the transportation, new durables orders rebounded 1.4 percent, following a 0.8 percent decline in January. Looking ahead, recent manufacturing surveys were mixed on new orders. The ISM durables index spiked to 62.3 for March from 55.0 the prior month (breakeven of 50) and the Empire State survey’s new orders index jumped to 25.43 from 8.78 in February. In contrast, the Philly Fed new orders index eased to a less positive 9.3 from 22.7 in February. The two regional surveys have a breakeven point at zero.
New orders for durable goods Consensus Forecast for March 10: +0.4 percent
Range: -0.8 percent to +2.5 percent
New home sales in February fell 2.2 percent to a 308,000 annual rate. This was a record low sales pace with this series which goes back to January 1963. Supply swelled to 9.2 months. Sales should rebound in March as this is the month in which most homes would have to be purchased and still close by the end of April in order to get homebuyer tax credits before that program expires at month end. New home sales are based on contract signing, not closing. Also, mortgage applications for home purchases firmed in March.
New home sales Consensus Forecast for March 10: 330 thousand-unit annual rate
Range: 319 thousand to 350 thousand-unit annual rate
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, October 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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