Monday Morning Outlook

Stocks drifted higher last week on light trading volume as major indices flirted with multi-month highs amid mixed economic data. The Dow and S&P are near 15-month highs, while the NASDAQ surpassed an 18-month high.

Last week, the Dow added 59.49 points, or 0.6%, to close at 10,624.69. The S&P rose 11.29 points, or 1%, ending at 1,149.99. The Nasdaq gained 41.31 points, or 1.8%, to close at 2,367.66.

On the jobs front, the number of newly laid-off workers seeking unemployment benefits slipped last week, as claims fell by 6K to a seasonally adjusted 462K. The recent survey was close to analysts’ projections, which was for an even greater decline to 460K claims. It also marked the second straight weekly decline in initial claims.

Of greater concern though, the number of people continuing to receive jobless benefits advanced by nearly 40K to more than 4.56M claims. However, almost 5.7M people were receiving extended benefits, down from 5.9M the previous week.

Within the housing industry, those who are on the verge of foreclosure may not be out of the woods yet. According to RealtyTrac Inc., the number of U.S. households facing foreclosure increased by 6% in February over last year’s tally, the smallest annual increase in four years.

In the report, more than 308K homeowners received a foreclosure-related notice, although it was down more than 2% from January. That equates to one in every 418 homes receiving a notice.

Banks repossessed nearly 79K homes last month, down 10% from January’s totals, yet still up 6% from February 2009. In 2009 alone, there was a record 2.8M households that were served with a foreclosure notice last year, and that number is expected to eclipse the 3M mark this year.

The U.S. posted its largest monthly deficit in history during February. The imbalance totaled $220.9B, 14% higher than the previous record deficit established in February of 2009. Through the first five months of the government’s fiscal year, the trade imbalance currently stands at $651.6B, nearly 11% higher than this time last year.

With a projected fiscal budget for 2010 potentially hitting an all-time high of $1.56 trillion, February’s report showed outlays of $328.4B and revenues of $107.5B. It was the first time in nearly two years that revenues were up. Through the first five months, revenues totaled $800.5B, 7% lower than from a year ago, while outlays totaled $1.45 trillion, up marginally from a year ago.

The trade deficit unexpectedly contracted in January, as U.S. demand for foreign cars and oil lessened, helping to narrow the trade gap. For the month, the deficit retreated to $37.3B, a 6.6% decrease compared to December’s deficit of $39.9B. On average, economists were looking for the trade gap to have widened to $41B.

In January, U.S. exports declined by 0.3%, as overseas needs for American built aircraft and machinery dwindled. The 0.3% drop left the total amount of exports at $142.7B for the month. Meanwhile, imports plunged by 1.7% in January, as many consumers have curtailed demand for oil and foreign automobiles. With imports declining, that left the overall tally at $180B.

Companies further reduced their inventories at the wholesale level in January, despite sales increasing for the 10th straight month. Wholesale inventories declined 0.2% during the month, following a 1% decrease in December. Economists were looking for inventories to post a modest increase of 0.2%.

Supplies at the wholesale level have declined for 13 consecutive months and have posted a decrease in 15 of the past 17 showings. The two gains in wholesale inventories occurred last October and November. Nevertheless, sales at the wholesale level posted a 1.3% gain in January, its best showing since a 3.6% surge last November.

Business inventories in January remained unchanged, according to the Commerce Department. Companies remain hesitant about restocking their depleted inventories amid a sluggish economic recovery. The unchanged reading in inventories was weaker than the 0.2% gain that economists had anticipated.

Meanwhile, total business sales advanced for the eighth consecutive months, posting a gain of 0.6% in January. The solid showing follows December’s even stronger reading of a 1% increase.

Despite inventories remaining at all-time lows, retail sales posted a surprise increase in February. During the month, sales advanced by 0.3%, its largest increase since last November, while surpassing the 0.2% gain economists had projected.

The 0.3% gain in February followed a 0.1% rise in January. The overall reading was hurt by a 2% decline in auto sales following Toyota’s mass recalls during the past few months. However, excluding autos, retail sales would have posted an even higher 0.8% gain, well ahead of the 0.1% gain economists had forecasted.

Data for this week includes Philadelphia Fed, Empire Manufacturing Survey and the FOMC Rate Decision report for March, Capacity Utilization, Industrial Production, Building Permits, Import/Export Prices, Housing Starts, PPI, CPI, and the Leading Indicator reports for February, net Long-Term TIC Flows for December, the Current Account Balance for the fourth quarter, and weekly results for Initial Claims and Crude Inventories.