Full week of data on U.S. economy ahead--here's what to look for that could move stocks

02/27/2012 1:02 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Investors are looking at a full schedule of news on the U.S. economy this week. Which is especially important to this stock market because, more than anything else, it’s anticipation of solid U.S. economic growth that supports stock prices at current levels.

On Tuesday we get data on durables orders for January. In December durables orders climbed 3.0% (economists had expected a 2% increase) on top of a 4.3% (after an upward revision) gain in November.

This time around economists are expecting a 1.4% drop in durables orders.

That headline won’t be terrible news if most of the drop came from the very volatile aircraft sector, where the timing of a big order can easily send overall orders from plus to minus and back again. Watch the numbers of orders for capital equipment. This is the stuff that companies order to make more stuff and the rise or fall of this number is an important indicator of business confidence in the economy. If CEOs think the economy is likely to grow, they’ll put in orders for more production machinery. A drop in this number would be a sign that no matter what U.S. consumers say about the domestic economy, CEOs see the global economy slowing.

Wednesday brings the second revision of fourth quarter GDP numbers. Right now economists aren’t expecting a significant revision either up or down from the annualized 2.8% in the first report on the December quarter.

The first fourth quarter report was modestly disappointing. At 2.8% growth did indeed climb from the 1.8% growth annual growth rate turned in for the third quarter, but it fell short of economists’ projections of 3.2% for the quarter.

An upward revision would be good news, clearly, but a slight downward drift wouldn’t be too negative—unless it indicated the beginnings of a significant negative trend in U.S. growth. Watch the inventory numbers closely. If inventory levels are rising that’s a sign that the U.S. economy will be hard pressed to match fourth quarter growth in the first quarter of 2012. If inventories are rising, it’s often a sign that sales are slowing and companies won’t order more until they’ve sold down their backlogs.

Thursday continues the data hit parade with releases on initial claims for unemployment and personal income/personal spending. Look here to see if this week’s initial claims number continues the recent drift downward in the number of workers filing new claims for unemployment. Last week’s initial claims number didn’t drop significantly but holding steady was still enough for the four-week moving average to continue its move lower. Falling initial claims are a good predictor for a good monthly jobs number for February on March 9 and a falling unemployment rate.

But don’t neglect the personal income/personal spending numbers. With consumer spending making up 70% of U.S. economic activity, it will be hard for the domestic economy to grow if consumers don’t keep spending. And a rise in personal income—which would be a reasonable outcome if employment is growing—would be the best guarantor of growth in spending.

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