Consumer Spending Forms V Pattern

The consumer spending (nominal) component of the Personal Income & Outlays report released today shows a classic ‘V' continuation pattern.

March consumer spending rebounded 0.4 percent (and was up 3.0 percent from a year ago) from a revised increase of 0.2 percent in February. Yeah, the perma-Bears like Peter Schiff got smoked on the upward revision in February to 0.2 percent. That was a big upward revision from 0.1 percent. That means consumer spending rose double in February from what was originally reported at the end of March.

Check out the textbook ‘V' continuation pattern in consumer spending:

The big resistance level to watch now is at 0.4 percent. My money is on the Federal Reserve being right about the U.S. economy picking up in Q2 and Q3 and so we should get a break above the 0.4 percent resistance level over the coming months. Who knows, if the revised March number is anything like what happened with February being revised up to 0.2 percent, we could have already broken through this level.

Consumer spending generates more than two thirds of GDP and is a key driver of growth.

Jobless Claims Break Support Hit 15 Year Low!

I usually do not write an article about the volatile weekly jobless claims report but folks, a major chart support was broke with today's report.

New claims for state unemployment benefits fell 34,000 to a seasonally adjusted 262,000 for the week ended April 25, 2015, the lowest reading since April 2000! The number of Americans filing new claims for jobless benefits tumbled to a 15-year low.

Jobless claims has been in a sideways trading channel for all of 2015. Today's plunge broke below support and continues the strong downtrend that began in January 2014.

I created the interactive infographic below that shows jobless claims in 2015. Hover your mouse over the line to see the specific data.

The major 267K support that has held for all of 2015 has been broke. More conservative traders may want to wait a couple more weeks to get confirmation of the break.

FOMC Announcement Keeps “Transitory” Language

The FOMC Announcement released today shows that the Federal Reserve continues to view the currently slowdown in the U.S. economy as nothing more than a “transitory” phase.

Overall I think it is a dovish statement. It acknowledges weakness in Q1 and it didn’t offset that with positives, other than to say weakness is transitory. It gives no clues about the timing of a first rate hike.Source:

We need to watch the GDPNow forecast for the Q2 2015 GDP estimate. If we see a massive turn around in Q2 2015 GDP estimates, I think we get a rate hike by September 2015 at the latest. Bar some spectacular turnaround, I think we can say rate hikes for June are off the table after the FOMC Announcement today.

FOMC Announcement Shows Small Downgrade Of US Economy

The Fed's language changed to be slightly more bearish on the economy than they were at the March meeting. Household spending was changed from “rising moderately” to “declining”. Business investment was changed from “advancing” to “softening”. Exports changed from “weakening” to “declining”. Labor conditions were changed from “improving” to “moderating”.

Below is a word cloud of today's FOMC Announcement (click on the image below to enlarge):

Durable Goods Orders Huge Beat and Trending Higher

Durables orders rebounded 4.0 percent in March. Analysts called for a 0.5 percent increase. Wow but here's the rub. This was all due to robust vehicle and aircraft orders.

Transportation surged 13.5 percent and that's what made the Durable Goods Orders report beat expectations. That's not exactly a measure of the U.S. consumer or broader economic activity. Nondefense capital goods orders excluding aircraft fell by -0.5%. Economists were looking for a +0.3% gain. Still, the stock market responded nicely to the report and that means so should we.

Outside oil, we think capex is rising at a decent clip, as it was before oil prices collapsed, but this is being swamped, temporarily, by the oil hit. The Fed, has to set policy based on the state of the overall economy, not any particular sectors, and we expect strength in the services sector to offset oil weakness and keep the labor market tightening rapidly over the next few months.Source:

Notice the right side of the chart that shows a series of higher highs and higher lows. That's an uptrend folks. Since September 2014, Durable Goods Orders have been uptrending. Notice too that the previous swing high resistance at 1.9% in January 2015 was broke. In fact, the +4% headline number is the fastest rate of growth since the big move back in July of 2014.

Orders for durable goods show how busy factories will be in the future, as manufacturers work to fill those orders. The Durable Goods Orders report provides insight into demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies spend more on equipment and other capital, they are obviously experiencing sustainable growth in their business.

New Home Sales Growth Slows But Trend Still Up

New home sales growth fell 11.4 percent in March to a seasonally adjusted annual rate of 481,000 units. That was the biggest percent drop in growth since July 2013.

I spoke with a trader today who told me new home sales dropped and the economy is therefore in trouble. Oh man, on some days people just give me a headache.

New home sales are still growing! In fact, 481,000 homes were sold in March. Folks, let's be clear about something. It is the rate of growth that fell, but the trend is still up.

Today's new home sales report shows how important it is to chart the raw data. Charting gives us perspective.

The stock of new houses available on the market rose 1.9 percent last month to 213,000. Supply still remains less than half of what it was at the height of the housing boom, good news for home builders who will need to ramp up construction.Source:

The chart shows that new home sales are still up +19.3% from a year ago. In March of 2014, new home sales came in at 403,000. In March of 2015, they came in at 481,000. How so called “analysts” could interpret this data as “the sky is falling” is beyond me.

The trend on the new home sales chart above is clearly up. We have a big down turn from today's report BUT think of it like this. If this was a stock chart, would you go all in on the short side in a bet this chart was going to go lower? No, of course not. You would be waiting for a bigger pull back before going short and betting that the market would reverse into a strong downtrend. That's the same way you should think of the new home sales chart in my opinion.