Dollars and Sense: Are jobless claims bottoming out?
A CEO resignation. The CEO of Angie’s List resigned last week, and there’s a story there. Bill Oesterle had been a co-founder and president of Angie’s list since 1995. But he and his company famously, or infamously we might say now, criticized the state of Indiana for passing a law to protect religious freedom in the state. Oesterle said Angie’s List would cancel a planned multi-million dollar expansion of its headquarters in Indianapolis. But conservatives and Christians started canceling their subscriptions to Angie’s List, and that seems to have made a difference. Angie’s List is a publicly traded company, but it has never posted an annual profit. The boycott came too late in the first quarter for us to get a good read on how it affected the company’s financials, based on the documents it has so far released publicly, but if it did drive Oesterle from the CEO chair, it must have been significant.
A sea change? Is this a sign of things to come? Are we going to see more moral, religious, and ethical issues being fought out in corporate boardrooms and through consumer boycotts? I think so. It’s really not new. Socially responsible investing—investing only in companies that are doing good, or refusing to invest in companies that do evil—has been around for centuries. Quakers refused to do business with shipping companies involved in the slave trade in the 18th century. More recently, an emerging movement called Biblically Responsible Investing manages client money by screening out companies involved in abortion, pornography, and homosexuality—among other immoral activities. Companies such as The Ave Maria Funds, Stewardship Partners, and The Timothy Plan now have billions of dollars under management. I think what happened at Angie’s List will cause many Christian investors to ask themselves if they are investing in companies that are doing things that violate their Christian principles.
Earnings season continues. We’re now getting deeper into earnings season. We’ve learned that things are not great, but neither are they a disaster. As I mentioned last week, most analysts think earnings will be down from last year—anywhere from 3 to 5 percent. If that comes to pass, it will be the first year-over-year decline in earnings in a couple of years. But it’s not clear that those predictions will in fact come to pass. JP Morgan Chase, the nation’s largest bank, beat earnings and revenue estimates. Goldman Sachs reported profit and revenue ahead of forecasts. Citigroup posted first-quarter results that beat analysts’ expectations for profits but missed on revenues.
M&A activity remains strong. One of the reasons bank earnings have remained fairly strong despite a low interest rate environment is all the merger and acquisition activity. Investment banking services, which include fees for M&A work, have been a key source of bank earnings. A couple of examples from last week: Builders FirstSource said it’s buying ProBuild, a supplier of building materials, for roughly $1.6 billion. Two mining companies, Alamos Gold and AuRico Gold, also announced a plan to merge on Monday. That deal will be worth about $1.5 billion. And Nokia said it is in talks to buy French networks company Alcatel-Lucent.
Strong dollar sometimes hurts. One of the reasons earnings are taking a hit is the strong dollar, which is discouraging U.S. exports and making it expensive to repatriate overseas earnings. In other words, a euro earned in Germany is no longer worth as much when it is converted into U.S. dollars for American financial statements. Schlumberger, a large global manufacturing and services conglomerate working mostly in the energy industry, saw a big earnings hit because of currency valuation and the price of oil. That said, the company still beat estimates, and few companies are as exposed to currency and oil prices as Schlumberger. So if it was able to manage through this, other companies are likely to, as well.
From Wall Street to Main Street. Retail sales may be on the rebound, jumping 0.9 percent last month after declining 0.5 percent in February, the Commerce Department said. The rebound suggests shoppers are returning after an unseasonably cold winter froze sales. But the rise was less than analysts expected. If the recovery is going to continue, consumers must get more fully in the action. A lot of analysts already are turning their attention from earnings, and they’re looking ahead to what consumer spending will do for the rest of the year.
The week ahead. It will be a pretty light week for economic reports. But we will get a durable goods report on Friday. It’s one of those few monthly reports that have the power to move the markets. I also will be looking at new jobless claims. That’s a weekly report that comes out every Thursday, so it usually doesn’t rate more than a couple of sentences, even on the business pages. But after several years of seeing that number decline, it seems to be bottoming out at between 250,000 and 300,000. Last week’s number actually rose slightly. So the question is whether we’ve reached the top of the job-creation cycle. If we have, that could have an impact on wages, as well as future Fed policy decisions. So it’s a boring and oft-forgotten number that is beginning to take on increasing significance.
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