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Leading Economic Indicators

April 2, 2012 – 5:13 pm

Two bits of information out this morning gave the market a little indigestion. The ISM manufacturing number for March came in just a hint under expectations at 53.4 but well above 50 which is the delineation between growth and shrinkage. That was a non-event as far as economic numbers are concerned. However, construction spending was down 1.1% when it was expected to be up .7%. The month before it was down .1% so the experts expected a rebound but got further weakness instead. To make matters worse the .1% fall in the month before was revised downward to an .8% fall.

The construction number is a lagging economic indicator and this report is especially lagging since it was for February and the revised number was for January. Also, all the weakness was in commercial and government building not home construction. That part of the report showed an unchanged, month over month, condition.

Construction spending is important but being backward looking it is not the key report most investors use to gauge the weakness or strength of building. More important is mortgage applications or new building permits that are being issued. They are leading economic indicators and tell us a lot more about the future of construction spending.

Always focus your attention on leading economic indicators. One that comes out weekly is unemployment claims. They have been trending downward all this year.

Good Trading
Steve Peasley

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