Sad to say that once again we've been hit hard with winter weather this year. We are as sick of it as you and are rather peeved at winter storm Thor for dropping nearly 9 inches of snow outside Washington, D.C., and other parts of the Mid-Atlantic to Northeast corridor. It seems Mother Nature forgot that we are now in March and we just "sprung ahead" last night.
Before tackling what's on deck this week, we have to discuss Friday's February employment report and a few other things. The headline for the jobs report boasted a robust 295,000 jobs being created during February, a big beat relative to the 240,000 jobs economists forecast. The second headline pointed to a drop in the unemployment rate to 5.5%. Those were the statistics much touted by the talking heads, and the buzz is this report could keep the Federal Reserve on track to raise interest rates midyear. This has reignited the up-down dance with high-dividend-paying companies, even though the data show that dividend dynamo companies tend to outperform over the long haul.
We know, however, despite the headline bluster, it's the internals or what's going on beneath those headlines that really matter. When we do that, we find a significant number of people continued to drop out of the labor force in February, and that was the real driver behind the drop in the unemployment rate. It's always a sign that things are not what they appear to be when the labor-force participation rate drops alongside a dip in the unemployment rate.
Despite the expected impact of higher minimum wages and announced pay raises at Wal-Mart (WMT) and other retailers, wage growth was once again modest in February at a measly 0.1% increase. Hours worked during February ticked down, which gave a nod to weather and port disruptions -- we continue to hear from companies like Macy's (M), Gap (GPS) and others that both will weigh on growth in the current quarter. Confirming that impact, the number of construction jobs created in February fell 40% month over month.
Finally, the quality of jobs created remains an issue as leisure and hospitality was the big winner in February, continuing the trend we've been watching for some time as a good portion of the post-crisis job creation has been of lower quality than the jobs that were lost. For example, mining/logging lost 8,000 jobs (which tend to be higher paying), while retailers (which tend to be lower paying) contributed 32,000 jobs. Makes you think about just how many "Do you have this in a small?" jobs it takes to replace one highly skilled mining job. On that note, if the job situation is so rosy, why has personal spending declined for two months in a row?
That sobering view tells us the Fed is not apt to fall under the Svengali-like influence of the media over this report when it contemplates interest rate liftoff. Moreover, the Fed looks at more than just one data point when examining the vector and velocity of the economy. As we discussed in last Wednesday's piece, over the last several weeks there has been a disproportionate number of economic data misses relative to expectations, such as personal spending, construction spending, factory orders, retail sales, business inventories, housing starts, building permits, industrial production and capacity utilization.
Remember, too, one of the key mandates of the Fed is to maintain stable prices by controlling inflation, and today's employment report showed little evidence for that on the wage front, and overall inflation remains more than tame, thanks to the sharp drop in oil and many commodity prices. With U.S. crude-oil supplies at their highest level in more than 80 years, according to data from the Energy Information Administration, inflation is likely to remain in check as oil prices are apt to drift even lower.
The sum of the data gives us little reason to think the Fed will begin raising interest rates as soon as June. We will have more weather- and port-influenced data making headlines in the coming weeks. As the market recognizes that and bakes it into its current quarter growth "cake," we see the opportunity to snap up a number of quality companies at better prices.
We'd also note that Treasury Secretary Jack Lew is making the rounds warning that unless Congress takes action, the U.S. will hit its debt limit on March 16, but will begin taking "extraordinary measures" on March 13 to finance the government on a temporary basis. Expect this topic to escalate in the coming days, and after the recent Department of Homeland Security funding snafu, not to mention the U.S. national debt clocking in around $18.1 trillion (or $154,000 per taxpayer), odds are high it could be another nail biter that amps up the volatility on Wall Street.
Turning to the week ahead, with three weeks or so until the close of the current quarter, we're entering into the calm that precedes the earnings storm. On tap are more retailers -- Express (EXPR), Vera Bradley (VRA), Aeropostale (ARO), Men's Wearhouse (MW), Ann (ANN), Urban Outfitters (URBN), Buckle (BKE) and a few more -- and we'll get a better feel for how bad the weather and port fallout will be post-Macy's and Gap. This should make for an interesting complement to the February retail sales report that drops on Thursday, since the last two have been softer than expected.
It's also a big week for Shake Shack (SHAK), and yes they do have tasty burgers and yummy shakes, as it reports its first quarter as a public company. The cynic in us is thinking the quarter's been properly IPO sandbagged and that means paying more attention to the outlook and future store location count. Earnings from other food companies, including El Pollo Loco (LOCO), Krispy Kreme (KKD) and Zoe's Kitchen (ZOES), will also be served up.
Out of all the earnings reports coming, the one that intrigues us the most is VeriFone (PAY) as it will shed some insight into the adoption of mobile payments and Apple Pay usage. That also reminds us that the week ahead will have a special showcase as Apple unveils the much-anticipated Apple Watch. Far more details -- pricing, the various collections and availability, to name a few -- should come to light, and we suspect it will fan the flames of anticipation.
Below is a more detailed look at what's coming in the week ahead. Check back midweek for our column, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.
|Economic Calendar: Monday, March 9 - Friday, March 13|
|9-Mar||Labor Market Conditions Index||Jan|
|10-Mar||NFIB Small Business Optimism Index||Jan|
|10-Mar||JOLTS - Job Openings||Jan|
|11-Mar||MBA Mortgage Index||Weekly|
|12-Mar||Retail Sales ex-auto||Feb|
|12-Mar||Export Prices ex-ag.||Feb|
|12-Mar||Import Prices ex-oil||Feb|
|12-Mar||Natural Gas Inventories||Weekly|
|Monday, March 9|
|IDT||Idt Corp-cl B|
|PNY||Piedmont Nat Ga|
|UNFI||Utd Natural Fds|
|XOXO||Xo Group Inc|
|Tuesday, March 10|
|BKS||Barnes & Noble|
|CASY||Caseys Gen Strs|
|JW.A||Wiley (john) A|
|NC||Nacco Inds-cl A|
|QIHU||Qihoo 360 Tech|
|Wednesday, March 11|
|BWS||Brown Shoe Co|
|FSYS||Fuel System Sol|
|RAVN||Raven Inds Inc|
|SHAK||Shake Shack Inc..|
|Thursday, March 12|
|GSVC||Gsv Capital Cp|
|IMOS||Chipmos Tec Ltd|
|IPAR||Inter Parfums I..|
|LGIH||Lgi Homes Inc|
|LOCO||El Pollo Loco|
|PGEM||Ply Gem Holding|
|SKIS||Peak Resorts, I..|
|Friday, March 13|