"Composition of Consumer Spending not as strong as the top line suggests" ~ Moody's
It's the devil in the details story all over again…From Moody's:
Spending growth accelerated to 0.7%, strongly supported by rising energy spending….Rising gaps prices pushed up gas spending and cold weather boosted utility spending… Spending growth exceeded income growth for the fifth month in the last six in December, putting the saving rate on a downward trend. Saving remains very high by prerecession standards. This is not a sign of prerecession-type aggressive spending… Consumer prices, as measured by the consumer spending deflator, rose 0.3%, the fastest growth since January. Excluding food and energy they were essentially unchanged
[Income] Growth in December was led by investment income. Interest, dividend, proprietors' and rental income all grew at an above-average pace. Transfer income and supplements to wages and salaries lagged…..Consumers will not lead the recovery consistently despite doing so in the fourth quarter. They simply do not have the resources.
The Chicago Ism report that followed the Personal Income story was far more robust clocking in at 68.8, it's highest level since the 1980s. The Chicago Ism employment index jumped from 58 to 64, also the highest level since the 1980s. Leading indicators were upbeat; new orders increased by 4.4 points to 75.7 for January. New orders have now risen for five consecutive months and are above its fourth quarter average of 62.9. New orders are running ahead of production, which foreshadows additional gains in factory output over the next few months. The gap between new orders and production widened from -1 to 2 for January. This is the first time the gap has been positive since May 2010. The inventory index fell 4.5 points to 54.5 for January, easing some concerns that stockpiles were getting to frothy. The gap between new orders and inventories—a good proxy for future production—widened from December's 11.3 to 21.2 for January. This is the widest gap since late 2009.
The problem with the Chicago ISM index is that it is “too good” and will be nearing a peak soon. However, prospects for increased hiring in the Midwest are quite strong as we enter 2011. And as mentioned over the weekend, US economic data on Monday would likely be the best investors will see all week. The short term outlook for the SP500 suggests it will struggle to get beyond the mid-1280s. See the 60 minute chart below that shows symmetrical targets for today and Tuesday exhausting in the mid-1280s and a 50% retrace at 1281 on the e-mini's and 1285 on the pit only (not shown) chart.
This bounce from the Sunday night lows is technically considered a bearish J-hook that will exhaust itself around the 50% retrace level (1281-1286)
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