At points of reflection in the economy the indicators typically are mixed.

This week’s releases were mixed but more were softer. Offsetting weaker economic releases, the fourth quarter corporate reporting season approached a close with over 72 percent of the companies reporting positive surprises and only 17 percent reporting negative surprises. Financial conditions firmed; Bloomberg’s Financial Conditions index remained in positive territory; corporate credit spreads remained unchanged in the face of the Greek crisis. In response, equity markets were lower while bond markets rallied. Oil fell to just below $80/barrel. Surprisingly, the euro gained slightly on the dollar.


Next week, the initial reports on February will be released. The U.S. employment report and the Purchasing Managers’ Indices will provide the first indications of the state of the recovery in February.

The PMIs are expected to remain in the expansion zone, but the U.S. employment report is likely to show little improvement with another month of losses in the non-farm payrolls. The nature of this recovery is its slow pace with little improvement in employment. This recovery will require patience.

Economic releases

The U.S. 4th quarter GPD was revised up two ticks to 5.9 percent on higher business spending. Personal consumption, on the contrary, was revised lower to 1.7 percent. January durable goods orders rose 3.0 percent; ex-transportation orders fell -0.6 percent; December orders were revised higher for both the headline and ex-transportation numbers. February consumer confidence dropped slightly in the University of Michigan survey, but significantly in the Conference Board’s survey. The Chicago Purchasing Managers’ Index rose a point to 62.6. The weekly initial jobless claims rose to 496,000.

The UK’s 4th quarter GDP was also revised two ticks higher to +0.3 percent. Increases in government spending and private consumption contributed positively to the upward revision. Consumer spending increased 1.5 percent in France. French CPI fell -0.2 percent while PPI rose +0.7 percent in January. Germany’s IFO index of Business Climate and Current Assessment fell while the Expectations Index rose in February. Germany’s CPI rose only +0.2 percent and its unemployment rate remained steady at 8.2 percent.

U.S. housing data was also softer. Both new home sales and existing home sales fell in January. New home sales fell to 309,000; existing home sales fell to 5.05 million.

In other U.S. housing news, the Case Shiller Composite Index of 20 cities rose a small fraction in December, but is down 3 percent from the previous year.

Equity markets were mostly lower on the week. Financials and consumer durables had the best returns; energy, materials, and utilities were the weakest.

Bond markets rose, reversing last week’s declines and then some.

The U.S. dollar rallied against the pound and looney, but gave ground to the yen and euro. It was surprising that the Euro held its own this week given the problems in euro-zone and reports that the Hedge funds were shorting the euro and calling for dollar parity.


John W. Davidson of Camden is managing director of Strategic Asset Alliance. He has more than 30 years of investment industry experience and holds an MBA in
finance and a master’s in mathematics from Boston College, as well as a bachelor’s in economics from Amherst College.