Chicago PMI Reveals Slowdown in Production, but Still Strong
Business activity got a little weaker in the Midwest Region in May, but do not confuse weak with bad.
The Chicago Purchasing Manager's Index fell from 63.8 in April to 59.7 in May but remains well entrenched in an expansionary cycle.
Production and orders slowed as those indexes slipped from 63.1 to 61.0 and 65.2 to 62.7, respectively. However, the slowdown was minor and any index above 60 shows significant overall expansion.
There were a couple of odd details in the data. Order backlog growth deteriorated as the index dropped from 61.4 in April to 52.7 in May. Typically, a significant drop in backlogs would be due to a drop in orders. While orders slowed, the drop was nowhere near as dire as one would expect for such a slowdown in backlogs.
The employment index returned to the contraction phase, dropping from 57.2 to 49.2. The drop in employment does not follow the strength in production numbers. It may mean that firms over hired as production initially started to expand and do not need to hire any additional workers.
U. Michigan Sentiment Index Revised Higher
Consumer attitudes strengthened slightly in May as the final reading of the University of Michigan Consumer Sentiment Index increased from 73.3 in the preliminary to 73.6. The rise was unexpected as the median estimate called for a slight decline to 73.2.
The rise in sentiment followed the surge in the Conference Board's Consumer Confidence Survey. That reading came in much stronger than even the most optimistic economists in the consensus survey as consumers held onto the belief that the labor market was in a strong recovery.
The move in the sentiment index exposed the same behavior. The economic outlook index increased from 68.3 in the preliminary to 68.8, its highest level since January, as consumer worries about the job market slightly subsided.
Personal Spending Held Flat in April
Personal spending in April was a slight disappointment as consumption growth was flat after increasing 0.6% in March. Consensus expectations called for spending to increase 0.3.
Consumption came in well below the 0.4% increase expected by the April retail sales report. However, that report showed a 0.5% increase in motor vehicle expenditures even though auto manufacturers reported a 560,000 unit decline in sales. The personal spending data revealed that motor vehicle spending actually declined 1.1%, which was in-line with the manufacturers' data.
Personal income increased 0.4%, exactly what the consensus expected.
Surprisingly, even though jobless claims have been trending higher, the government paid out $21.8 bln less in April than March.
After two months of declines, personal savings increased from 3.1% to 3.6%. It is unknown if this is the start of a new upward trend in savings or if it is a one-time increase.
Core PCE prices increased 0.1%, exactly what the consensus expected but slightly higher than April's CPI report. Year-over-year core price growth declined from 1.3% in March to 1.2% in April and remains well below the Fed's target level of 1.5% - 2.0%.
JCG Raises FY11 Guidance
J. Crew (JCG 43.86) last night reported first quarter earnings of $0.68 per share, $0.11 better than the consensus of $0.57 per share.
The company reported that revenues rose 19.7% year-over-year to $413.9 million, above the $394.2 million consensus.
Gross margin increased to 49.0% of revenues, from 42.2% of revenues in the first quarter of fiscal year 2009.
The company issued in-line guidance for the second quarter, expecting earnings of $0.40-0.45, in-line with the $0.44 per share consensus. The company issued upside guidance for fiscal year 2011, raising earnings guidance to $2.35-2.45 per share, above the $2.34 per share consensus, up from its previous guidance range for fiscal 2010 of $2.20 to $2.30 per share.
GES Beats Expectations but Lowers Guidance
Guess? (GES 38.17) last night reported first quarter earnings of $0.58 per share, excluding $0.04 in charges, $0.09 better than the consensus of $0.49 per share.
The company reported revenues rose 22.2% year-over-year to $539 million above the $507.2 mln consensus.
The company issued downside guidance for the second quarter, expecting earnings of $0.65-0.68 per share, below the consensus of $0.78 per share. The company expects revenues for the second quarter to be in the range of $560-570 million, below the consensus of $592.05 million.
The company stated, "Based on the continued strengthening of the US dollar against the Euro, this full year outlook includes a further negative translation and margin impact on diluted EPS of $0.16 for the remainder of fiscal 2011. This is in addition to the $0.12 negative translation impact that the company had initially expected for the same period."
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