With all the talk about a looming recession and bad earnings that we get in financial media, it's so important to remember that it's just talk. Talk that has had no real support outside of a few struggling retailers that are out of touch with the consumer. Here we are in the middle of earnings season and some major companies ranging from banks to retailers to tech have put up some outstanding earnings, coupled with growing sales. Then, supporting the earnings data are a broad range of economic indicators that are all pointing to a sustained expansion.
Thursday gave us another week of low unemployment claims data that did move up slightly from last week's very low levels, but still remain near historical lows. As I've touched on before in this space, at this point in the cycle it's business activity that is now of utmost importance, since we know the economy is essentially at full employment. As long as claims data can stay around these levels or even drift up towards 300,000, we would have our Goldilocks labor market that's not running too hot or too cold, thus keeping the Fed at bay.
That said, Thursday also gave us some housing and manufacturing data that show the economy continuing to move along at a healthy pace. First up was the Phildelphia Fed Manufacturing survey, which came in above expectations with its new orders index jumping 14.9 points to 16.3 September, for its best reading since November 2014. 16.3 represents the percentage of firms reporting an increase in activity above those reporting a decrease. The shipments index also made a significant move, getting up to 15.3 from a prior negative 8.8 reading.
The Philly Fed manufacturing survey is by far the most respected of the Fed manufacturing surveys and builds on the bounce back we got in the nationwide ISM Manufacturing survey from last month, which moved back into expansionary territory. Taking this improved manufacturing data along with the solid services data we got in the September ISM Services report, we can say with proof that the economy is moving along just fine.
Next up was a very strong existing home sales (EHS) report that showed a 3.2% monthly gain in sales from August's already elevated levels, with median prices rising 5.6% from last year. Considering the lack of inventory and high prices, the growth in sales only proves how strong the demand for housing is out there. It's even more encouraging to know that home sales are running strong, with the strict lending standards we have today that help to ensure a healthy housing market going forward.
Lawrence Yun, the head NAR economist who presented the EHS data expressed his frustration with low housing inventory in this comment: "Unfortunately, there won't be much relief from new home construction, which continues to be grossly inadequate in relation to demand."
With housing in such demand, this has significant implications for the economy going forward as construction labor and building materials will be in high demand for the foreseeable future. Look no further than the excellent earnings report out of Pulte Homes (PHM) on Thursday that saw 29% and 16% Q3 year over year growth in sales and closings respectively.
To round out our actual data, not just talk, are some company earnings highlights which support the bull market thesis. Tech giant Microsoft (MSFT) had a phenomenal quarter that blew away top and bottom line expectations and saw its stock trade up to a new all-time high in the afterhours. MSFT is a great example of a seasoned tech company that has adapted to the new tech world and is in touch with what consumers want. Then we had Paypal (PYPL) that also beat expectations, reporting 18% and 24% year-over-year growth in sales and transaction volumes respectively with the stock climbing 5% in afterhours. Strong PYPL earnings highlight the strength in online shopping and overall retail consumption.
Basically, this leaves us with an earnings season that is going well for the bulls so far, and leaves the bears with just talk.