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EARNINGS SEASON TO PICK-UP STEAM

The low level of New Home Sales (and hence the low level of homebuilding activity) is the principal reason that this recovery has been so anemic. In fact, the lowest seven months of New Home Sales on record have been in the last seven months, and if the consensus estimate is hit, make that eight of eight. It is hard to overestimate the importance of New Home Sales to the overall economy, especially in the early stages of an economic recovery. New Home Sales are expected to bounce to an annual rate of 300,000 from 290,000. 4% increase might look OK, it is coming off an extremely depressed - http://Www.Wired.com/search?query=extremely+depressed base. Every home built generates a huge amount of economic activity that feeds through the entire economy.

5 million seasonally adjusted annual rate they posted in December, that is well off the under-10 million pace at the depths of the Great Recession, but a far cry from the 16 to 17 million annual rates that were the norm before the recession. It will be a very long time before we hit those levels again, but we will continue to see vehicle sales slowly recover. Auto and light truck sales probably continued to accelerate from the 12.

4% pace it rose in November. Of course, if spending is rising faster than income, it implies a fall in the savings rate. Personal spending probably rose at the same 0. Personal Income probably increased by 0. Over the last few years far too much of that income growth has come from higher transfer payments from the government, and not from higher wages and salaries. 3% increase in November. In addition to the amount that Personal income goes up, the data breaks out the sources of that income growth. 3% in December, matching a 0. Over the short term that is a good thing, but in the longer term that is very bad news. Dividend income will probably rise nicely, but be offset by a fall in interest income due to the ultra low interest rate environment we are in.

The National Association of Homebuilders index is expected to remain at 16, an awful showing. Any reading below 50 indicates a contraction. While off its all-time low of 9 set in January 2009, it is still pointing to a very weak environment for the homebuilders.

The good news is that the low level of housing starts means that less housing is being added to the current bloated inventory. The very low level of housing starts is one of the key reasons job growth is so sluggish. The bad news is that normally homebuilding is one of the main forces pulling the economy out of a recession, and that is simply not happening this time. Housing Starts are expected to have slipped slightly to a seasonally adjusted annual rate of 550,000 from 555,000 in November.

Given the small number of firms reporting, we skip this section this week.
Potential Positive or Negative Surprises
Historically the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Nothing of significance. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter.

8% in the fourth quarter up from 2. 6% growth in the third quarter. In the third quarter, a very large part of the overall growth came from a very low quality source, namely increases in inventory investment. We will provide a complete breakdown of where the growth came from here at Zacks. It is likely that the quality of growth will be better, as well as the level, in the fourth quarter. The composition of growth will be as important as the absolute level of growth. Look for a bigger contribution from consumer spending and from business investment in plant and equipment, and for net exports to be less of a drag on growth. GDP is expected to have risen at an annual rate of 3.

034 million from a year ago. Last week they fell by 26,000 to 3. Continuing claims have also in a downtrend of late, but the path has been erratic. Make sure to look at both sets of numbers! Federally paid extended claims rose by 29,000 to 4. Looking at just the regular continuing claims numbers is a serious mistake. 677 million, and down 979,000 from a year ago. Many of the press reports will not, but we will here at Zacks. Some of the longer-term decline due to people simply exhausting their regular state benefits which run out after 26 weeks, but even extended claims have started to decline (erratically) as well.

That would more than reverse the 1. The October decline was due to a fall-off in orders for Transportation equipment, most notably civilian aircraft. New Orders for Durable Goods are expected to have risen by 1. That is an extremely "lumpy" area for new orders, as just a few jumbo jets can swamp order growth or declines for the rest of the economy in any given month. Those orders are expected to rise in December. Changing the base can have a significant effect on the month-to-month change, and are worth paying attention too. 3% decline in November. Excluding transportation equipment, orders actually increased by 2. These numbers, both total and excluding transportation, can be heavily revised.By Dirk Van Dijk, Zacks. The firms reporting this week include several icons of U. So far the earnings season seems to be going well. All in all, it looks like a very busy week, with lots of news that has the potential to move the markets. It will also be a heavy week for economic data, including data on both ISM surveys (Manufacturing and Service), Personal Income and Spending, Productivity and finally the all important employment report. A total of 561 firms are due to report, including 106 S&P 500 firms. business, including: Aflac (AFL - Analyst Report), Dow Chemical (DOW - Analyst Report), Emerson (EMR - Analyst Report), Merck (MRK - Analyst Report), Pfizer (PFE - Analyst Report), Paccar (PCAR - Analyst Report), United Parcel Service (UPS - Analyst Report), Visa (V - Analyst Report) and Exxon (XOM - Analyst Report). com
Next week the fourth quarter earnings season is in full swing.

Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service. More from Pragmatic Capitalism:
Reminder: Tapering is not Tightening YRC WORLDWD INC YRCW 201012 ($1. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. More about Zacks Strategic Investor >>
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Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.

The ISM manufacturing index is expected to slip slightly from its 57. In addition to the overall index, pay close attention to how some of the key sub-indexes which cover production, new orders and employment are faring. As a "magic 50 index," that reading would mean that the manufacturing side of the economy is continuing to grow, but it is doing so at a slower pace than it was in December.

11% disappointment and over the last month the mean estimate for the about-to-be-reported quarter has been cut by 3. Cincinnati Financial (CINF - Analyst Report) is expected to report $0. CINF is a Zacks #4 Ranked stock. Last time out it reported an 8.

While the overall economy does seem to be picking up, it is not likely that they will change their Quantitative Easing program (QE2). The Federal Reserve is almost universally expected to keep the Fed Funds rate unchanged at between 0 and 0. It will be interesting to see if any of the new members take up his stance in favor of a tighter monetary policy. We will parse the Policy Statement closely for any changes. Last year's lone dissenter, Tom Hoenig, is no longer a voting member. It will - http://www.google.com probably keep the rate there through all of 2011.

Existing Home Sales are expected to increase to a seasonally adjusted annual rate of 4. That should help bring the months of supply down from the November rate of 9. That really is what to watch in the existing home sales numbers, since the amount of economic activity generated by an existing home changing hands is not really that big a deal, but home prices are a very big deal. Unfortunately, it looks like they are falling again. That level is still extremely high and indicates strong downward pressure on home prices.

We get the first read on Productivity growth in the Fourth quarter. Over the long run, productivity is probably the single most important economic statistic there is. reducing unemployment). Given the relatively strong growth of 3. Growing simply because there are more people in the country does not improve living standards. However, in the short term, rapid increases in output per hour are not particularly helpful in raising the number of hours worked (i. In the third quarter, it was running at 2. 2% in GDP in the third quarter, and the still anemic growth in employment during the third quarter, I would expect to see an acceleration in productivity probably to around 2. It is productivity, after all, that determines per capita GDP, and that is the GDP growth - http://Answers.Yahoo.com/search/search_result?p=GDP+growth&submit-go=Search+Y!+Answers that really counts.

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Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks. WILMINGTON TRST WL 201012 ($0. More about Zacks Strategic Investor >>
Post Footer automatically generated by Add Post Footer Plugin for wordpress. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service. More from Pragmatic Capitalism:
Reminder: Tapering is not Tightening With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC.

This is also a "magic 50" index, so we could see a very big decline and still indicate that the service side of the economy is still growing. I would be surprised at a major decline, and think we will still stay north of the 60 level, indicating still strong growth. The ISM Services Index is expected to have slipped a bit from the extremely strong 63. As with the ISM manufacturing index, the behavior of the key sub-indexes of business activity, new orders and employment are at least as interesting as the overall level of the index.