CHICAGO, May 23, 2011 /PRNewswire/ -- Zacks.com releases
the list of companies likely to issue earnings surprises. This
week's list includes: AutoZone (NYSE: AZO), Applied
Materials (Nasdaq: AMAT), Costco (Nasdaq: COST),
Heinz (NYSE: HNZ) and Medtronic (NYSE: MDT).
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Mopping Up Earnings Season
Earnings season is starting to wind down, with just a few
stragglers left. A total of 99 firms are due to report, including
13 from the S&P 500. Mostly we are down to the retailers, many
of which have fiscal period ends a month later than everyone
else.
The firms reporting this week include AutoZone (NYSE:
AZO), Applied Materials (Nasdaq: AMAT), Costco
(Nasdaq: COST), Heinz (NYSE: HNZ) and Medtronic
(NYSE: MDT).
It will be an average week for economic data. We start off with
New Home Sales and Durable Goods orders on Tuesday, followed by the
second look at first quarter GDP on Wednesday, and finish up the
week on Friday with data on Personal Income and Spending, as well
as the Fed's favorite measure of inflation, the core PCE index.
Monday
Nothing of significance.
Tuesday
New Home Sales are expected to remain at the 300,000 rate they
were at in March. That is simply a pathetic level, even if it is
slightly off the record low set in January. The records go back to
the Kennedy administration. If we do come in at 300,000, that is
still lower than any month prior to 2010. Unlike used home sales,
each new home sold represents a lot of economic activity. Thus this
is a very important report. Normally, new home sales are what leads
the economy out of recessions, but they have been a huge drag this
time around.
New Orders for Durable Goods are expected to drop by 2.0% after
rising 2.5% in March. Previous months are often revised
significantly for this data, and the recent trend has been for
upward revisions, so it would not be surprising to see March
revised up to about 2.9%. Much of the weakness expected comes from
the highly volatile transportation equipment segment. Since they
are so high priced, a few orders for jetliners can really push
around the total number, but the orders tend to be lumpy. Excluding
transportation equipment, new orders are expected to rise 0.6% down
from an increase of 1.3% last month. Thus, with the exception of
transportation equipment, things are slowing down, but not headed
down.
Wednesday
The second look at GDP growth in the first quarter is released.
The initial read was a disappointing growth rate of just 1.8%, down
from growth of 3.1% in the fourth quarter. The consensus is looking
for a slight upward revision to 2.0% growth. That is still quite
anemic, particularly coming out of a deep recession. The
composition of the growth rate is just as important as the overall
growth rate itself. Growth that comes from the build-up of
inventories for example is of much lower quality than business
investment in new equipment and software. We will provide a
complete breakdown of which parts of the economy are adding to
growth, and which are serving as brakes on economic growth, and how
the contributions have changes since the first look at the numbers
last month.
Thursday
Weekly initial claims for unemployment insurance come out. They
had a very nice decline early in they year, but then had a very
rough month or so in March and April. The last two weeks have been
much more encouraging. Last week they fell sharply, by 29,000 to
409,000. A further decline is expected next week, getting us back
below the psychologically important 400,000 level. The four week
moving average will probably stay well above the 400,000 level.
Continuing claims have also in a downtrend of late, but the road
down has been bumpy. Last week they fell by 81,000 to 3.711
million. That is down 937,000 from a year ago. I would expect a
decline this week. The consensus is looking for a level of 3.700
million. Some of the longer-term decline is due to people simply
exhausting their regular state benefits, which run out after 26
weeks. Those however, don't last forever either. Federally paid
extended claims rose by 4,000 to 4.109 million, and are down by
1.278 million over the last year. Looking at just the regular
continuing claims numbers is a serious mistake. They only include a
little over half of the unemployed now given the unprecedentedly
high duration of unemployment figures. A better measure is the
total number of people getting unemployment benefits, currently at
7.937 million, which is down 47,000 from last week (there are some
timing issues so the change in continuing and existing claims does
not exactly match the change in the total). The total number of
people getting benefits is now 2.120 million below year-ago levels.
What is not known is how many people have left the extended claims
via the road to prosperity, finding a new job, and how many have
left on the road to poverty, having simply exhausted even the
extended benefits. Given the differential between job growth and
the decline in total people getting benefits, it looks like about 1
million people have simply run out of benefits, and have not found
new work. Make sure to look at both sets of numbers! Many of the
press reports will not, but we will here at Zacks.
Friday
Personal Income is expected to have increased by 0.4% in April,
down from a 0.5% increase in March. This is a broad measure of
income, not just wages and salaries. The composition is important,
as over the last year or so, much of the growth in income has come
from transfer payments, not from wage growth. Personal Spending is
expected to have slowed to an increase of 0.5% from 0.6% last
month. That is still more than the increase in income -- meaning
some more downward pressure on the savings rate. A falling savings
rate boosts the economy in the short term, but a low savings rate
is not healthy over the long term. The U.S. still has a very low
savings rate relative to both history and the rest of the world,
although it is significantly higher than it was a few years
ago.
The University of Michigan consumer
sentiment survey is expected to be unchanged at 72.4. That is a lot
better than where it was a year ago, but not exactly a robust
reading.
Dirk Van Dijk, CFA, is the
Chief Equity Strategist for Zacks.com.
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