The Economy Isn't As Dismal As the Dismal Scientists Think | | By Ben Eisen | Market Snap at Thu, 25 Aug 2016 08:32:18 -0400 ET S&P 500 Futures -0.22% ↓ 2170.25 | DJIA Futures -0.21% ↓ 18433 | U.S. 10 Year 1/32 ↓ 1.558% | WSJ Dollar Index -0.05% ↓ 85.81 | Crude Oil -0.36% ↓ $46.6 | Gold -0.47% ↓ $1323.50 | Overnight Developments Stocks and the dollar mostly drifted lower, with market attention focused on the Federal Reserve's annual Jackson Hole meeting, set to start later Thursday. Futures pointed to a 0.2% opening loss for the S&P 500, following modest declines in Europe and Asia. The Stoxx Europe 600 was down 0.8% in the early afternoon. Germany's Ifo index, a key indicator of the economy, fell sharply in August, disappointing expectations for a slight increase. Germany's DAX index shed 0.9%. Earlier, shares in Shanghai were down 0.6%, even as China's central bank put more cash into the system through 14-day reverse repurchase agreements, which are effectively loans to commercial banks. | The Breakfast Briefing Economic data have been beating forecasts recently. But that says more about the forecasts than the data. Some strong economic numbers, such as those which show a robust labor market, have pushed angst-ridden bond traders to finally start believing the Federal Reserve will lift interest rates before the end of the year. Traders in the fed funds futures market see a 49% chance of a rate rise by the end of December, according to CME Group data. But the data may not be all its cracked up to be. Take a look, for example, at Citigroup Inc.'s U.S. economic surprise index, which is positive when data are beating consensus forecasts in aggregate and negative when data come in below. After many months below zero, the index spiked to as high as 43.1 at the end of July from minus-23.8 at the end of June. It's remained solidly above zero through August. Bianco Research LLC took a look at the index and separated the data itself from the expectations. What the firm found is that forecasts have been stagnating recently. The data have still been getting incrementally better, but without commensurate improvement in forecasts, the surprise index skyrocketed. In other words, it's become easier to beat the consensus views. "Nothing changed in the economy," said James Bianco, president of Bianco Research. "What changed was economist expectations." Expectations began to stagnate after British voters chose to leave the European Union in late June, delivering a surprise that many feared would have economic ramifications. In spite of the vote, the data continued their slow path higher, thereby widening the gap between forecasts and actual numbers, according to Mr. Bianco. There are, of course, signs of increasing economic strength, such as the two blowout monthly jobs reports for June and July, which showed the U.S. added more than 250,000 jobs in each month. That's prompted some economists to say Fed Chief Janet Yellen will set the stage for another rate rise when she speaks Friday. But some of the hype around improving economic numbers seems to be about gaming expectations. Below that lies an economy that continues to muddle along. GDP numbers from the end of last month, for example, showed the U.S. economy growing a tepid 1.2% annualized rate last quarter. That may be one more reason for the Fed to keep rates low. | Daily Factoid On this day in 1944, Paris is freed from German control. | MoneyBeat Podcast |  Play Podcast → In an encore presentation, the MoneyBeat crew examines how the commodities world impacts the economy just as much as our every day lives. | Tweet of the Day CNBC's Eric Chemi: The U.S. government is buying $20 million of surplus Cheddar, American, etc. Can we call this Quantitative Cheesing? -- Ron Insana @rinsana | Key Events Fed's annual monetary policy symposium in Jackson Hole, Wyoming Economists and central bankers gather in Jackson Hole, Wyo., for a symposium that extends into Saturday. Ms. Yellen's Friday speech could offer signs of whether the Fed sees enough economic momentum to support raising interest rates in September or the coming months. 8:30 a.m.: Durable Goods Orders for July [Prior: -4.0% Consensus: 3.2% In June, new orders for U.S. durable goods were down a seasonally adjusted 4% from the prior month, the largest one-month decline since August 2014. The headline figure was depressed by a massive 58.8% decline in orders for civilian aircraft and parts; Boeing had separately reported just 12 orders in June versus 125 in May. A 20.7% decline in orders for defense capital goods didn't help, either. The silver lining was the 0.2% increase in a closely watched proxy for business investment: orders for nondefense capital goods excluding aircraft. Even that modest rise was the best reading for the category since March; it was down 0.5% in May and fell 0.9% in April. 8:30 a.m.: Jobless Claims [Prior: 262,000 Consensus: 265,000] There was no sign of a pickup in U.S. layoffs in last week's report. The Labor Department said that initial jobless claims fell by 4,000 to a seasonally adjusted 262,000, marking the 76th straight week of claims under 300,000--the longest streak since 1970, when the population was a lot smaller than it is today. 10:30 a.m.: EIA Natural Gas Report Analysts expect EIA data to show natural-gas inventories rose by 19 billion cubic feet of gas during the week ended Aug. 19. The estimate for Aug. 19 compares with 63 bcf added to storage for the same week last year and a five-year average build of 66 bcf for that week.If the storage estimate is correct, inventories as of Aug. 19 totaled 3.358 trillion cubic feet, 9.2% above levels from a year ago and 12% above the five-year average for the same week. 11:00 a.m.: Kansas City Fed Manufacturing Index [Prior: -6] Factory activity across the Plains states pulled back in July as low energy prices continue to constrain demand for manufactured goods, though the region's producers turned more optimistic that orders would soon pick up. | Stocks to Watch Shares in Guess Inc. are up 18% after the company on Wednesday offered an optimistic earnings view for the year as the apparel maker's restructuring efforts begin to pay off. In addition, earnings beat expectations. Shares of Workday Inc. jumped 8.7% ahead of the bell, after the finance and human resources cloud company late Wednesday posted revenue ahead of forecasts. Dollar General Corp. is off 8.5% and Dollar Tree Inc. is down 7.1% after both reported earnings. Dollar General said store traffic was down in the most recent quarter, and same-store sales fell short of expectations. Dollar Tree said traffic rose just slightly, while its sales also came in below consensus. HP Inc. shares slumped 5.9% premarket, even after the tech company reported better-than-expected earnings late Wednesday. Its profit outlook for the current quarter was below analysts' expectations. Sears Holdings Corp. is off 4.1% before the bell after reporting same-store sales at Kmart declined 3.3%, and Sears domestic same-store sales fell 7%. Chief Executive Edward S. Lampert said the company's performance remains pressured by a "challenging competitive environment." Tiffany & Co. is up 3.8% after earnings came in better than analyst had feared, getting a boost from improved profit margins. Medtronic PLC is up 0.4% before the bell as results came in just ahead of analyst expectations. | Today's Video |  Play Video → As ordinary and high-profile Twitter users, such as actress Leslie Jones, continue to get harassed, the social network is working hard to find solutions that protect its users from abuse. | Number of the Day 0.80 Over the last five quarters, the five-year rolling correlation between the performance of the S&P 500 and the dividend yield of the companies in the index has been 0.80 or better. That is the highest level since 1993 and an indication of how important dividends have become to stock prices. | Chart of the Day |  | | Follow WSJ MoneyBeat |  | |
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