KEY DATA: ISM (NonMan.): +1.1 points; Orders: +1.2 points /Trade Deficit: $1.2 billion wider/ Openings: -159,000; Hirings: +297,000
IN A NUTSHELL: “Politicians and market experts keep saying the economy is trouble, but the data keep telling us that is just not the case.”
WHAT IT MEANS: All portions of the economy look like they are coming back. Last Friday, the Institute for Supply Management reported that manufacturing grew solidly in March as orders surged. Today they reported that the non-manufacturing portion of the economy improved as well, also because of rising demand. Exports were solid, a story repeated in the trade data. In addition, hiring picked up, which we saw in the March employment report. Backlogs are building, though not rapidly. With orders and business activity up and order books filling, it is likely we should see solid job gains in the months to come.
As for the nation’s trade situation, there was good news and bad news in the February report. First, the deficit widened, which means more money is flowing out of the country to buy foreign products. But while imports were up, so were exports. Foreign purchases of our products are coming back. The manufacturing sector had been battered by low energy prices and the rising dollar, but at least those companies that sell their products overseas may be coming out of the dark tunnel. We sold more computer products, telecommunications equipment, engines, motor vehicles and consumer products. However, we bought lots of consumer products and capital goods. That points to improving household and business activity.
As for the labor market, there was mixed news in the February Job Openings and Labor Turnover Survey (JOLTS). This is a favorite of Chair Yellen and who knows how she will react to it as openings fell but hirings jumped. The new hires were the highest since November 2006, which is impressive. It just might be the firms have finally figured out how to fill all those open recs, which may explain the decline in openings. There was also a rebound in quits. There had been a sharp drop in January, which was strange. As it turns out, it looks like the decline was just a blip in the trend toward more people leaving their jobs to find other positions. That only happens in a solid labor market.
MARKETS AND FED POLICY IMPLICATIONS: For the most part, today’s reports point to a domestic economy that is in good shape. First quarter growth looks like it may be a little less solid than hoped for, but the underlying data indicate all is still well. That means the battle for the hearts and minds of Fed members will continue. The Chair will continue doing all she can to rein in those who want to make moves sooner and more often than she does, while the opposition uses the latest data as ammunition to return fire. I don’t expect either side of the hike/don’t hike debate to back down until the inflation data demand that one side capitulate. With states passing increased minimum wage laws and companies raising their wages to match competitors’ moves, I just don’t understand how the compensation data have stayed so tame for so long. But I have argued that wages are set to jump for over a year now, so maybe I never will get it. Anyway, investors should see these reports as supporting the hawks at the Fed. But the markets haven’t delinked from oil, so who knows where they will go given the wishy-washy nature of the petroleum markets.