Two Out of Three Ain't Good Enough

A lot of economic news came out of Tuesday and the score was two to one on the OK side. But the bad one was enough to hit the market hard. The Chicago purchasing managers index (PMI) was 39.9, up from the six-month average of 36.6. This index uses 50 as the dividing line between expansion and contraction, so a 39 doesn't brighten the skies. When you figure where it was coming from and that Chicago will be affected by the auto industry, the number washes well enough.

At -18.1, the Case-Shiller housing index was in line with expectations and was a very slight improvement over the prior month. Certainly not a good number but not worse than expected, the reading indicates that the rate at which house prices are falling has slowed.

As I said yesterday, though, being less bad is no longer good enough. Improvement in the "second derivative" is no longer acceptable. We will soon have to have outright good news to move the markets. Our housing analyst Anna Torma feels that with high unemployment, continued foreclosures and tight lending standards, we are not likely to be led to the promised land by the housing sector.

The number that deflated the markets was the consumer confidence survey. Hopes had been high that the number would be in line with last month's reading of 54.8. The Conference Board reported a dismal 49.3, which took the wind out of the market. The consumer is still more than 70% of all economic activity.

I would guess the recent 15% or so rise in gasoline prices and an uptick in mortgage rates was a knock directly to the consumer psyche. While still well above the depression-like low of 25.3 in February, it is still below the 61.4 that was current when Lehman collapsed.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.