Bull/Bear Weekly Recap: February 28 - March 4

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Submitted by Rodrigo Serrano of Rational Capitalist Speculator

Bull/Bear Weekly Recap: Feb 28 - Mar 4

+ Manufacturing continues to be the shining beacon of the US recovery.  The Chicago PMI came in at its highest level in 22 years!  More good news in manufacturing as February ISM readings point towards continued strength.

+ The much larger service sector also shows accelerated improvement and points to continued job gains in the immediate months ahead. 

+ Jobless claims continue to trend down
and reinforces the bullish thesis that the job market is improving and
will provide for more permanent and sustainable domestic demand.  We can
also see an improving job market from the ADP employment survey, which reports a stronger than expected @ 217,000
for February and is a good harbinger for Friday’s BLS payroll report. 
UPDATE: The BLS Job report shows an increase of 192K with back month
revisions totaling 58K…so overall it was a jobs report of +250K.  The
unemployment rate also declined to 8.9%, the lowest in a LONG time.  The
job market is certainly turning the corner. 

+ This can be seen in retailers February sales reports as they came in better than expected
as well as Auto sales for February.  They shot up to the best levels
since August.  Demand is coming back and this is feeding into
manufacturing. Continued growth in consumer demand will lead to firms
increasing hiring …the virtuous cycle has begun.  

+ Bernanke states that supply/demand forces are at work when explaining the rise in commodity prices.  This argument defends the Fed’s QE program and opens the door to a QE3
if stock markets begin to decline or economic growth begins to
disappoint.  The Fed’s there to help.  The Bernanke Put remains. 

+ German Retail Sales for January rise a stronger than expected
1.4%.  The engine that drives the Eurozone remains strong.  Fears of a
double dip in the region are exaggerated.

Bear

- Oil prices continue to rise, now over $100/barrel.  Libya is in a
civil war right now, though that country only accounts for about 2% of
production.  Saudi Arabia?  That’s a whole different animal and things
aren’t looking too good on that front.  The oil-rich nation’s stock
market has plunged nearly 20% in a sign that investors don’t like the
country’s prospects.  The date on traders’ radars?  March 11, 2011. Could oil spike in the coming weeks?  

- My worst fears may be becoming realized.  Both Chinese manufacturing PMIs come in showing weaker growth but increasing inflation.  Officials MUST combat inflation.  Red flags continue to wave and China may be entering a hard-landing scenario. Need more proof?  Non-manufacturing PMIs are showing signs of contraction!

- What else is new?  The housing market continues in the doldrums.  Construction spending for January falls
While it could be weather related, high amounts of inventory will
surely result in builders pairing back inventory.   Furthermore,
mortgage applications for the prior week showed a decline, signaling near term weakness in the housing outlook. 

- Incomes jumped for the month of January, however,
it was explained due to the tax-cuts taking effect.  Did consumers use
the cash to spend?  No.  They saved it instead.  If this behavior continues, then consumption estimates may have to be reversed 

- Gov’t spending cuts may be beginning to show through layoffs as the Challenger Job-Cut Report shows a sharp increase in layoffs in the sector.

- Certainly the Gallup Poll
doesn’t agree with the job recovery story.  Note that this indicator
may be more in tune with recent events in the middle east and oil
spiking as a result.  This may be a harbinger of March economic
reports.