August 10, 2009

Aug 2009 Economic Recovery Reality Index up slightly to 16.03

Posted in economic indicator, economic recovery, ERRI, health care, Obama administration, U.S. Economy tagged , , , , , at 2:41 am by realitytax

Bolstered by a very slight improvement in the unemployment rate and average weekly earnings, since non-farm payrolls declined slightly, despite robust activity on Wall Street the Economic Recovery Reality Index (ERRI) crept up a modest 4.76 points over July 2009 to 16.03 as of August 7, 2009. Unemployment rates remained essentially unchanged among the major demographic divisions examined by the U.S. Bureau of Labor Statistics, and many experts still expect the overall rate to increase to 10%, in part because hiring necessarily lags other economic indicators.

Nonetheless, investors seem optimistic, some of the uncertainty surrounding the big 3 U.S. automakers has subsided, and stock markets reflect an increasing willingness to move funds back into equities over the past month. The ERRI is based in part on a weighted, hypothetical mid-cap oriented index fund (see below) which showed upward, yet uneven movement across the 10 sectors/industries being tracked. Solar technology and utilities lagged other sectors, which were led by investment in retail and cyclical consumer goods, with solid performance in basic materials and capital goods equities (construction, aerospace, etc.) Energy showed some investor confidence, while both financial and service sectors reflected substantive improvement in sentiment.

Average weekly earnings, which had fallen in June reflecting that wage earners continued to be under siege, showed a modest recovery during July by returning to the levels they had been at in May of this year. The increase in the number of “discouraged” workers is slowing – it has risen roughly 335,000 people over the past 12 months, but only 3000 were added to that number in the latest monthly figures, while the number of “involuntary part-time” workers declined slightly. (Discouraged workers are those not currently looking for work because they doubt jobs are available for them.) The bright spot in the figures may be Health Care, where employment continued to make gains – up about 20,000 jobs in July.

U.S. government unemployment figures are estimates based on a monthly survey of households. All persons who are without jobs and are actively seeking and available to work are counted among the unemployed, including those on temporary layoff are included (even if they do not actively seek alternative work.)


Note: The particular selections comprising the security/equity component of the ERRI (data below) were selected to track various sectors, not out-perform the broader U.S. equity markets. These are not investment recommendations, and should not be construed as such. The ERRI fund is an entirely hypothetical construct, and while the author and/or persons connected to the research and/or this website may at times hold positions in these securities, particularly via any one of a number of mutual funds, no representation is made as to the suitability of any given equity, sector, on investment strategy for the reader.

Further, while the hypothetical index fund component shows apparent growth of 23% when calculated simply against an initial cost-basis of $10,000 and an August 7 valuation of $12,298.41 it should be noted that the weighting of various sectors means the effective impact is approximately tantamount to only a 17.6% change, which is not evident in the raw data below. The ERRI fund calculation represents only investor sentiment to the extent stock market behaviors reflect this mostly professional group; domestic (and global) economic recovery depend heavily on wages and employment, as well as difficult-to-quantify public sentiment.

Data on the equities is presented “as though” an investment had been made in an “index fund” for the ease of comparison and understanding, but no such fund exists nor did any investment take place. Equity investments are volatile, particularly when not carefully diversified and monitored; the ERRI would have shown even less improvement had closing prices from even a day sooner been utilized in the calculations (since that would have reduced the “ERRI fund” improvement.) The third column in the table below represents the percentage change in the individual equity prices as of the close of the NYSE on 7 August 2009.

symbol 7 Aug 09
close
%
+/-
index
value
Sector Industry
EMN $ 52.73
+43.09

1,423.71

Basic Materials Chem. (Plastic & Rubber)
HON $ 36.38
+16.68 582.08 Capital Goods Aerospace & Defense
CAT $ 47.78
+49.64 716.70 Capital Goods Constr. & Agric Machinery
FDML $ 14.98
+54.91 1,542.94 Consumer Cyclical Auto & Truck Parts
HQS $ 9.09
+8.60 1,081.71 NonCyclic Consumer Fish / Livestock
BBEP $ 8.73 +19.26 593.64 Energy Oil & Gas (Integrated)
PZE $ 7.02
+17.39 582.66 Energy Oil & Gas (Integrated)
AIB $ 5.88 +28.38 423.36 Financial Money Center Banking
CMA $ 27.61 +26.42 414.15 Financial Regional Bank
FITB $ 9.71 +37.54 456.37 Financial Regional Bank
CCI $ 28.11 +15.87 562.20 Services Communications Srvcs
JWN $ 30.30 +50.67 727.20 Services Retail (Apparel)
FSLR $146.47 +3.48 1,025.29 Solar Technology Semiconductors
RIMM $ 77.09 +16.49 539.63 Technology Comm. Equipment
PLXS $ 26.58 +23.11 611.34 Technology Electronic Instr & Controls
POM $ 13.91 +2.73 1,015.43 Utilities Electric

Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]

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