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Economic Update - Something to Build On

It may not be pretty, but at least it’s not bearish either. What’s that? While the market was largely distracted with earnings news last week - good at first, and then turning bad later in the week - we actually were dished out a ton of important economic news. Though we don’t have time and space to take detailed looks at all of it, we do want to examine a couple of the most important items…. industrial activity, and unemployment. Both gave us reason for encouragement, rather than reason for panic.

Let’s start with the unemployment picture. While the actual unemployment rate isn’t in a freefall, it is lower, at 9.5% (versus the peak at 102% from October). That wasn’t the big news from last week though. No, the big news was the fact that new unemployment claims finally fell under the stubborn 440K mark with a move to 429K. That’s the lowest level since mid-2008, and though it’s too soon to call it a trend, it’s not too soon to take notice.

If continuing claims can just break the 4.44 million mark, that would compete the trifecta.

As for industrial activity, our interest lies in two key numbers - capacity utilization, and the industrial productivity index. Both have shown tremendous correlation with the broad markets overall (long-term) direction. Therefore, both are immensely important top us as investors.

Though not by much, the industrial productivity index increased last month; it was the 11th straight improvement. Capacity utilization stayed flat, at 74.1% (but didn’t fall - the 11th straight month of a “not lower” reading).

Like it or not, both suggest the economy is still in growth mode, even if it’s tepid growth. That’s still distinctly different than a contraction though, which is an ultimate omen of a recession. And either way, one month’s worth of data isn’t enough to jump to a conclusion (good or bad).

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.