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Strategist zeroes in on economy’s bottom line

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roeder report

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: August 24, 2012 4:47PM

One of the biggest irritants about following the stock market is the endless daily flow of economic data, numbers that point up, down and sideways. They are followed most closely during times of uncertainty, which is pretty much always.

The data releases come from many sources, mostly inside the government, and go from the familiar, such as the unemployment rate or the Consumer Price Index, to the technical, such as capacity utilization rates for factories. These indicators are leading or lagging, core or noncore, revised or preliminary. They can move markets.

Who can get a clear picture from all this? John Blank, chief equity strategist for Chicago-based Zacks Investment Research, has an opinion about the data deluge that should rate him an economics prize, a common man’s Nobel.

Blank believes there is only one economic indicator to follow. It’s the Labor Department’s monthly release of non-farm payroll totals. It is published at 7:30 a.m. Chicago time the first Friday of every month.

“Governments create this number for their own consumption,” Blank wrote. “Our president and National Security Council, among others, get the monthly payroll number a day or two before stock markets do. That is how important it is.”

In an interview, he called the payrolls data “a key piece of information” about the economy’s current state. There’s nothing delayed about it. It’s drawn from a survey of employers covering about 400,000 worksites and is the broadest measure of whether they are hiring.

Perspective is needed, however, to interpret the number. Blank said census data about the U.S. labor force show that it’s growing about 1 percent per year, which amounts to a gain of 125,000 people per month. That becomes a baseline number for growth; when the U.S. economy adds more than 125,000 jobs in a month, it’s a bullish sign. Less than 125,000, and the economy looks flimsy.

The most recent number was for July and showed non-farm payrolls growing by 163,000, a healthy but preliminary number that followed three months of expansion well under 100,000 jobs each time.

Blank has worked out a way to anticipate how the payroll number will change. He follows the government’s weekly numbers of new unemployment benefits. Yes, this introduces a second economic indicator to follow, but we have to go with it.

“This is the flip side of the payroll number,” Blank said. In most cases, when people go off unemployment, it’s because they got a job.

So tracking the weekly change in the unemployment benefit number, up or down, will point to likely changes in the jobs figure.

Blank said the new payroll report, to be issued Sept. 7, should indicate job growth of 140,000 to 150,000. He’s cautious. “This is not a bullish picture,” he said.

Yet it can build the case for a further rally in the stock market if investors put more faith in near-term growth.

But more importantly, Blank’s approach is simple and direct. He’s an ally of any investor who isn’t an economist or a government data-cruncher.

TRACTOR TRACKER: Surveying its district that includes northern Illinois and parts of four other states, the Federal Reserve Bank of Chicago reported that despite challenges to farmers from drought, agricultural land values are thriving. On average, they are up 15 percent from a year ago, Fed Business Economist David Oppedahl reported. He also found higher repayment rates for non-real estate farm loans.

The growing season has been tough, but crop prices are high, and the Fed’s data probably mean farmers are confident about the future.

Why should we care here in the big city?

Farmland prices historically have been a reliable indicator of how companies such as Deere (DE) or Caterpillar (CAT) will fare. A farmer who feels flush is more likely to spend on equipment.

And take note that DE and CAT shares are down about 12 percent and 20 percent, respectively, from their recent highs last spring. Over the last 12 months, the stocks are little changed.

MORAL HAZARD: The New York Times reported that federal prosecutors are unlikely to file criminal charges against Jon Corzine, former chairman of MF Global, in connection with the firm’s loss of $1.6 billion in customer money.

I suppose if federal prosecutors owned any of that $1.6 billion, they’d turn over the right rock.

NEWS ITEM: Ikea announced it will open a no-frills hotel chain. It won’t use the Ikea name or furniture.

How about discounts for the first guests if they assemble their own beds?

CLOSING QUOTE: “Financial system liquidity is strong, valuations reasonable and earnings growth positive, and there’s a lot of cash kicking around the world. If you look at companies’ fundamentals, the progress is reasonably good.” — Brian Rogers, chairman, T. Rowe Price

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