April Housing Starts and Industrial Production

KEY DATA: Starts: -2.6%; 1-Family: +0.4%; Permits: -2.5%; 1-Family: -4.5%/ IP: +1.0%; Manufacturing: +1.0%

IN A NUTSHELL: “The pick up in manufacturing activity comes at the right time as home construction seems to have hit a lull.”

WHAT IT MEANS: Watch what people do, not what they say. Yesterday, surveys indicated that housing was moving forward strongly but manufacturing may be slowing. At least that is what the respondents said. Well, today’s data indicate the exact opposite happened in April. First, home construction slowed. Housing starts fell, though the decline was driven by a slowdown in the always-volatile multi-family segment. Sharp reductions in building activity in the Northeast and South overwhelmed solid increases in the Midwest and West. Looking forward, permit requests were off as well. Since permit requests outpaced starts over the past three months – and were well above the April level – look for a pop in starts in May. That, however, will just bring us back to an average pace.

Industrial production jumped in April and the rise was broad based. Not only did we have a nice increase in utility production, but the energy sector rebounded significantly and manufacturing output surged. Eight of the eleven durable goods manufacturing segments and seven of the eight nondurable sectors posted gains. The biggest increases were in vehicles and petroleum. It is nice that the energy sector is growing rather than contracting sharply as it did last year. As for the pop in assembly rates, unless sales pick up, we are could see some shaving in output. There was also a large rise in the production of computers and business equipment, indicating firms may be investing again. That would be good news for growth this quarter.

MARKETS AND FED POLICY IMPLICATIONS: The sharp increase in industrial activity is a clear sign that the first quarter sluggishness is behind us. But we have to be cautious in reading these numbers. March was a strange month and the April data have averaged out the ups and downs. What we need to see is consistently good numbers, not one bad and one good. A 3% or more second quarter will not indicate the economy is in off to the races. It will, however, make it possible we don’t have another sub-2% growth rate. My point is that the data are volatile and if the March and April numbers were switched, we probably would have two quarters both in the 2.25% range. Big deal. Given that investors seem to be turning a blind eye to any negative information but are celebrating anything that looks good, I suspect they will cheer the production report and skip the housing numbers. But they shouldn’t. The April starts number was almost 6% below the average for the first quarter and it will be hard to get above 3% growth if housing isn’t expanding. That is especially true given the less than stellar vehicle sales. I point all this out to make the point that I just don’t know where the earnings will come from to support the constant increase in equity prices. It is doubtful is will come from domestic activity. As for the Fed, it produces the industrial production report and the large increase adds to the belief that the next rate hike is coming very soon.

May Home Builders Index and New York Fed Manufacturing Survey

KEY DATA: NAHB: 70 (up 2 points)/ NY Fed: -6.2 points; Orders: -11.4 points; Expectations: -0.6 point

IN A NUTSHELL: “The housing market is beginning to look a little like it did a decade ago.”

WHAT IT MEANS: The housing market continues to recover and in many metropolitan areas, prices are pretty much where they were at the peak of the housing bubble. Meanwhile, developers are feeling like things are really strong once again. The National Association of Home Builders’ Index rose in May to a level seen only in boom times. I am not saying construction is booming; only that builders feel that way. For the first five months of the year, the index averaged 68, a level that was exceeded only in 2005 and 1999, two economic bubble years. The present conditions and expectations indices are near record highs. Interestingly, though, traffic is good but hardly great. That reflects the reality that sales levels are no where near the peaks we had seen and will not likely be there anytime soon – if at all. I guess what you have to conclude is that builders feel real good about the industry, even if it is running at a lower pace than in the past.

Manufacturing has helped keep the economy moving forward, but the strength of this sector may be waning a touch. The New York Federal Reserve Bank’s Empire State Manufacturing Survey took a tumble in May. Overall activity slowed as orders and backlogs declined. Still, hiring remained solid and respondents were still pretty optimistic.

MARKETS AND FED POLICY IMPLICATIONS: Most economists expect that second quarter growth will rebound from the weak gain recorded in the first part of the year. But it is not clear how strong it will be and what it will say about the state of the economy. Tomorrow we get housing starts and industrial production and if the NAHB and NY Fed surveys tell us anything about what is actually happening, starts should be good but production not so much. That would further muddle the economic picture. Even if second quarter GDP growth is in the 3% range, as I expect, the economy would have expanded during the first half of the year at a roughly 2% pace. In other words, the more things may change in other places, the more the economy remains the same. Yet investors seem to be assuming growth will stay at 3% for as long as the eye can see and that all the other things happening in the world just don’t matter. Aren’t rose-colored glasses wonderful? There is nothing at work that should cause growth this year to be much more than about 2.25%. I don’t know what that means for equity prices, but I do think it raises questions about earnings expectations for the rest of the year. Oh, well, I guess that’s why I am an economist and I don’t run money.

April Consumer Prices, Retail Sales and Real Earnings

KEY DATA: CPI: +0.2%; Excluding Food and Energy: +0.1%/ Sales: +0.4%; Excluding Vehicles: +0.3%/ Real Hourly Earnings: +0.1%

IN A NUTSHELL: “The rising costs that businesses are facing have yet to translate into significant increases in consumer prices.”

WHAT IT MEANS: This week we saw that the goods businesses buy have been rising in cost. But that doesn’t mean firms are passing those costs along, at least not yet. Consumer prices rose moderately in April driven largely by jump in energy costs. Gasoline, electricity and natural gas costs all rose sharply. Otherwise, this was a pretty tame report as a number of goods posted declines. Prices of vehicles, both new and used, apparel and medical commodities were all down. It is interesting to note that medical services and commodity prices paid by consumers have been relatively modest and the medical care inflation rate has decelerated for the past seven months. It is now below 3%. Housing is one place where consumers are seeing consistently higher prices. Excluding food and energy, inflation has come off and is now below the Fed’s 2% target, though it remains above it for all consumer goods.

For the economy to pick up steam, consumers will have to spend a lot more than they did in the first quarter. They are doing that to some extent. Retail sales rose moderately in April as sales of motor vehicles rebounded. The vehicle sales rate, however, remains below where most manufacturers want to see it. But the really good news was that households went out and bought lots of electronics, building materials and to deal with the chaos in Washington, medical products. They ate out at a decent pace and online sales were strong. There was a rise in gasoline spending, but there was also a much larger rise in prices, so people may have actually cut back on their driving. The mid-April timing of Easter could have pulled some March spending forward, so we need to be careful in concluding that consumers are back out buying things.

Can households continue to pick up their spending pace? Yes, but not by much. Real earnings, which adjusts for inflation and represents spending power, rose minimally in April. If you want to know why consumption has its limitations, consider the simple fact that spending power rose by less than 0.5% over the past year. If you don’t have the money to spend, you cannot spend unless you go into debt. Unfortunately for the average retailer, households have gone heavily into debt for homes and vehicles this past year and that may be limiting their ability to spend on everything else.

MARKETS AND FED POLICY IMPLICATIONS: Inflation may not be rising sharply and that is the one saving grace for this economy. With wage gains barely exceeding the moderate inflation rate, the potential for consumption growth is limited. Let’s not forget that tax cuts prime the pump but once it is primed, you still need to expand spending power. So you get a short-term bump to a higher level of demand but where do you go from there? It depends heavily on income growth adjusted for inflation. Spending power growth peaked in October 2015 and has decelerated sharply since then as inflation accelerated and wage gains didn’t keep pace. Real wages have grown by less than 1% per year, on average, for the past seven years and increased by over 2% only in 2015.   Unless that changes, don’t expect consumers to spend at a pace that could lead to stronger economic growth. Investors might like these reports, but for the wrong reason. A more moderate inflation rate could be viewed as limiting the Fed’s animal instincts (i.e., their desire to normalize rates). But if the hope is that the economy will grow at 3% or more, well you can get it for a short time with a tax cut but it cannot be sustained without much more rapid real wage gains. And that could cut into earnings.


April Import and Export Prices

KEY DATA: Imports: +0.5%; Fuel: +1.6%; Nonfuel: +0.3%; Exports: +0.2%; Farm: +0.3%

IN A NUTSHELL: “The steady acceleration in nonfuel imported goods costs is another reason for the Fed to raise rates.”

WHAT IT MEANS: We may be only a week past the last FOMC meeting, but it is already history. With job gains rebounding to decent levels, only some sudden deceleration in inflation might slow the Fed from its appointed round of rate hikes. (The members don’t care much about rain, heat or gloom of night.) Well, it doesn’t look like inflation is going to decelerate anytime soon. Import prices rose sharply in April, led by a jump in fuel costs. But it wasn’t just energy, which has backed off lately. Nonfuel prices rose solidly as well. Food, building supplies, metals, vehicles and even to a small extent consumer goods costs were up. The acceleration in the rise in imported goods prices, excluding energy, has been going on for sixteen months now. While the increase over the year of 1.4% for non-petroleum goods imports is not great, it is an awful lot more than the 3.7% decline that was posted as recently as December 2015.

On the export side, the farm sector is doing fine again. Prices rose for the fourth consecutive month and sixth out of the last seven. Since April 2016, prices are up 4.6%. In comparison, one year ago, farmers were looking at a 9% drop, over-the-year, in their export prices.

MARKETS AND FED POLICY IMPLICATIONS: Given yesterday’s events, it is likely this report and most others that come out this week, will be trees falling in the forest. Yes, we get additional inflation numbers and April’s retail sales report, but for investors, the political implications of FBI Director Comey’s firing are critical. Let’s face it, what matters to investors is whether the president’s agenda, specifically, tax cuts, regulatory reform and spending increases, is hurt by the action. The passage of the AHCA was viewed in that light, not whether it made health care better, worse or did nothing to it. If the firing backfires and harms the ability to pass legislation, then markets will react accordingly. If it goes away, then investors can continue dreaming of changes in those issues they hold dear. But we may not know for a while. There are lots of politicians hiding under rocks today but they may have to actually say something eventually. I just don’t know what stand they will take. Meanwhile, the Fed will be watching the week’s data carefully and if the consumer and producer price indices also show further acceleration in inflation, it would be prudent to expect that the FOMC will do something at its June 13-14 meeting.   

March Job Openings and April Small Business Confidence

KEY DATA: Openings: +61,000; Hires: +11,000; Quits: +80,000/ NFIB Confidence: -0.2 point; Business Expectations: -8 points

IN A NUTSHELL: “The labor market is slowly tightening, yet even small businesses are managing to find workers to hire, though with great difficulty.”

WHAT IT MEANS: We hear lots of stories about how hard it is to find workers. Nevertheless, firms are still hiring. Job gains so far this year have been solid and all the measures of unemployment are at levels consistent with full employment. Today’s numbers support that view. The closely followed JOLTS report, produced by the Bureau of Labor Statistics, pointed to further hiring and some growing turnover in the labor market. The number of job openings was up in March, signaling that firms are still trying to add their workforces. That they are having problems finding the ones they want is clear in the somewhat limited increase in hiring. But the most interesting number in the report was the level of quits. The number of people willingly leaving their jobs continues to rise (though in a saw-tooth manner). Since September 2009, the level has nearly doubled. That shows that people have pretty much overcome their fear of making a move.

The problems that businesses are facing finding people was highlighted in the National Federation of Independent Business’ monthly survey. The optimism index eased a little in April, though it remains near record highs. But confidence about the future took a major hit. Political reality is colliding with hopes that regulations and taxes will be cut. That said, firms hired quite heavily and hiring plans remained strong.   Still, this segment of the economy is saying that qualified workers are extremely difficult to find. The report noted that “87 percent of those hiring or trying to hire reported few or no qualified applicants for their open positions”. When it comes to problems facing small businesses, quality of labor now ranks just below regulations and red tape and is rapidly closing in on taxes.

MARKETS AND FED POLICY IMPLICATIONS: There is a debate over which measure of unemployment is the best measure of unemployment. The reality is that it doesn’t matter. The two measures commonly used are both at levels consistent with full employment. Yes, one is higher than the other.   But level doesn’t matter, only what the level should be at full employment and we are there. In addition, people are quitting more often, while business people running firms of all sizes are saying they are having massive problems filling jobs with qualified workers. Those are indicators of a tight market. Yesterday, the Conference Board reported that its Employment Trends Index jumped in April, another sign that firms are hiring. But that doesn’t mean we are going to see job gains above or maybe even near 200,000 per month. Without the workers to hire, firms are doing the next best thing: They are moving part-timers into full time jobs. That solves the qualified worker problem without actually adding any workers. So going forward, it may be the hours worked number that really counts, as payroll gains should remain in the 150,000 to 175,000 range. Since that should be enough to keep the unemployment rate trending downward, look for the Fed to tighten again soon. If we get a tax cut bill by the end of the year and the economy accelerates even a modest amount, the Fed may be forced to move more quickly than anticipated. Timing is everything in life and while tax reform (not just tax cuts) is critical, when it occurs is important. The labor markets have limited slack now and will have even less at the end of the year. Hyping the economy with tax cuts and spending increases will come with a cost, which is likely to be higher wages, inflation and interest rates.

First Quarter Productivity, March Trade Deficit, April layoffs and Weekly Unemployment Claim

KEY DATA: Productivity: -0.6%; Labor Costs: +3%/ Trade Deficit: $0.1 billion narrower/ Layoffs (Over-Year): -27,539/ Claims: -19,000

IN A NUTSHELL: “The tightening labor market is raising costs but firms are failing to improve productivity to offset those increases.”

WHAT IT MEANS: You can get growth either through adding workers or working more efficiently (or, of course, both). Well, firms are adding workers, but they are showing few signs that they are able to use those workers more effectively. Productivity fell in the first quarter, which was not really a major surprise given the weak economic growth during the quarter. Since payroll gains were strong, it was clear that we would get an ugly labor cost number and we did. Unit labor costs, a key measure of the cost of producing a good, rose sharply. These data bounced around sharply, as does GDP, so it would normally not be major concern. But given that productivity has been growing at a pretty pathetic 0.6% pace for the past five years, today’s report provides little comfort that anything is changing. And if you don’t get a surge in productivity, the ability of the economy to accelerate will remain limited.

The trade deficit was largely flat in March, as exports and imports declined by the same amount. That is hardly good news since we would like to see both increasing. On the export side, we sold more food and capital goods, but that was just about it. Foreign demand for our motor vehicles, consumer products and industrial supplies dropped. Oil played a major role in that decline, but some of that may have been related to the decline in prices. Imports, though, also fell, hardly a sign that the U.S. economy is surging along. The only thing we bought more of was motor vehicles. Given the weakening sales numbers (the April pace was disappointing and that followed a truly soft March number), I am not sure that is a good thing. Adjusting for prices, it looks like the trade deficit estimate in the first GDP report was on target, so if the growth rate is changed, it is not likely to come from any major revision to the deficit.

Firms are holding on to workers quite tightly. The Challenger, Gray and Christmas April report on layoffs showed that workforce cutbacks continue to decline from 2016 levels. Just about the entire drop came from the new-found stability in the energy and computer sectors. On the other hand, retailers are closing stores like crazy and that is pumping up the layoff numbers.

Unemployment claims dropped back to labor shortage levels. That reinforces the view from the layoffs numbers that firms simply will not fire someone unless they have to, such as when they close stores.

MARKETS AND FED POLICY IMPLICATIONS: Today’s story is the productivity numbers. You cannot grow at a 3% pace if productivity is increasing at a 1% pace. That is because the labor force is just not there. There simply is no reserve army of the unemployed or underemployed to call on and hours worked are already fairly high. The increase in hours worked during the first quarter was less than what we saw in 2016. While jobs may be declining in traditional retailing, they are growing in Internet retailing, warehousing and distribution. Technology still requires people, either directly or indirectly. Robots may replace some workers, but a totally robotic economy is not in the near future. So, if you believe that all you need to do is loose the animal instincts of the business sector and growth will magically surge, you might want to reconsider that view. As for the health care bill, I am fascinated by the idea that the way to introduce more private sector competition into the health care system is to ramp up government payments to companies. Since when did Republicans start believing that the government should subsidize the private sector and that more government spending was a good thing? Please, someone explain this to me.

March Durable Goods Orders, Pending Home Sales and Weekly Unemployment Claims

KEY DATA: Orders: +0.7%; Excluding Transportation: -0.2%; Capital Spending: +0.2%/ Pending Sales: -0.8%; Claims: +14,000

IN A NUTSHELL: “The soft demand for big-ticket items doesn’t provide hope that the first quarter sluggishness will turnaround soon.”

WHAT IT MEANS: The administration wants to create 3% growth for as far as the eye can see. Well, it has a way to go to get there. Durable goods orders rose in March, which should be a good sign. However, much of the gain came from a surge in defense aircraft orders and a more moderate increase in nondefense airplane demand. Meanwhile, orders for vehicles, computers, communications equipment, fabricated metals and machinery were off. There was strength in the electrical equipment and appliances segment, as well as primary metals, but that was it. As for capital goods spending, it rose only minimally. CEOs may be optimistic, but they have yet to put their money where their mouths are. Looking outward, order books did fill a bit, so there could be some additional production going forward.

The housing market has been doing its part in keeping the economy going and that should continue. Yes, the National Association of Realtors reported that pending home sales eased in March, as three of the four regions reported that contract signings for existing homes declined. They were up only in the South. However, the level is still quite high, so look for home sales to be strong, even if the growth in demand isn’t great.

New claims for unemployment insurance rose solidly last week. This number has been noisy lately, so don’t take too much away from the increase. The level is still low, indicating that the labor market continues to tighten.

MARKETS AND FED POLICY IMPLICATIONS: It looks like tomorrow’s GDP report could be very disappointing. After today’s durable goods orders numbers, the Atlanta Fed thinks growth could come in essentially flat. The surging household and business optimism has not translated into growing economic activity. People are optimistic, but are taking the Jerry Maguire approach: Show me the money! The greatest tax cut in the history of the solar system may have been proposed yesterday, but its passage is well into the future. Indeed, it is hard to know what will come of the proposal as the one-pager was purposely vague so it couldn’t be scored. At least that is what the White House budget chief indicated. That said, it can and is being scored, if only to provide a baseline from which legislators can work as they try to actually reform the corporate tax system. The numbers have started rolling in and they are pretty discouraging. The estimates of the hit to the national debt ranges from $3 trillion to $7 trillion over a decade. That means there will have to be massive loophole closings or the tax cuts will balloon the debt. The administration hasn’t shown any great willingness to detail those changes to the corporate goody-bag, leaving the heavy lifting to Congress. Unless Republicans suddenly have an epiphany and decide that deficits are wonderful, it is likely the final plan will look nothing like the one-pager the President and his men proposed. And that is good reason for businesses and households to not act until they determine if they are suffering from rational or irrational exuberance.

April Consumer Confidence, March New Home Sales and February Housing Prices

KEY DATA: Confidence: -4.6 points/ Home Sales: +5.8%/ FHFA Prices (Over-Year): +6.4%; Case-Shiller National Index (Over-Year): +5.8%

IN A NUTSHELL: “Home prices are soaring and housing sales are up, but reality is setting in and confidence is fading.”

WHAT IT MEANS: While we will not get the first reading on first quarter growth until Friday, it doesn’t look like it will be good. But that doesn’t mean we cannot get a rebound. For the economy to pick up steam the consumer is going to have to lead the way and it is not clear that will happen. Consumer confidence is starting to reflect the realities of governing, not the hopes that the swamp will be drained, whatever that means for economic policy. Not surprisingly, the Conference Board’s measure of consumer sentiment eased in April. After having soared since the election, the failure to implement any real policy changes has made people a little more uncertain about what will actually get done. Don’t be surprised if confidence retrenches for several more months or until Trump actually gets something passed.

Despite the decline in confidence, the level is still high and that has translated into growing willingness to take on debt. New home sales rose solidly in March, joining existing home sales which also rose at a strong pace last month. Compared to March 2016, sales were up an impressive 15.6%. The rise in new housing purchases occurred despite a modest slowdown in the Midwest. That portion of the country had posted a huge rise in February, so a small drop is nothing to be concerned about.

With sales up, so are prices. Both the Federal Housing Finance Agency and the S&P CoreLogic Case-Shiller home price indices jumped in February and have posted large over-the-year gains. We are not yet in a housing bubble, but the dearth of supply, which persists in both the new and existing housing segments, will likely lead to even faster price increases going forward.

MARKETS AND FED POLICY IMPLICATIONS: The markets are concentrating on earnings and the likelihood (?) or hope (?) that a moderate will win the French election. Thus, fears that France might pull out of the EU have been eased by this weekend’s first round results. And earnings have been okay despite soft growth. A weaker dollar hasn’t hurt, but that is currency translation, not necessarily real business gains and foreign earnings don’t necessarily find their way back into the U.S. But the strength in the equity markets indicate that even a soft first quarter growth number might not do much to corral the stamped. That might have to wait until the employment report is released a week from Friday. One number to watch is the wage growth. The Philadelphia Fed released its non-manufacturing report today and the eye-opener was an enormous jump in the compensation component. Nearly forty percent of the respondents indicated that they had to increase wage and benefit costs. Labor cost inflation is finally starting to show its head, though I have said that a number of times before. Still, if the Fed is to raise rates in June or July, which I expect, it is going to need something to base that increase on. Rising wages would allow Chair Yellen to say that the labor market is clearly tight and that could be enough to announce another quarter-point move.

March Existing Home Sales

KEY DATA: Sales: +4.4%; Over the Year: +5.9%; Prices (Over-Year): +6.8%; Inventory (Over-Year): -6.6%

IN A NUTSHELL: “Home sales are on the rise despite the rapid rise in prices.”

WHAT IT MEANS: Economic growth during the first part of the year may have been disappointing but the housing market decided not to participate in the slowdown. According to the National Association of Realtors, sales of existing homes rose solidly in March with the pace being the highest since February 2007.   The recession is over, long live the recovery, at least the housing rebound. The March increase was spread across most of the nation, though there was a small decline in the West. It was also fairly evenly distributed between single family and condo purchases. The increase in demand is happening despite a sharp rise in prices. That is the result of limited inventory. The number of homes for sales was down quite a bit from a year ago despite an increase in March. A rising sales pace and a declining supply can only lead to one thing, higher prices and we certainly are getting that.

MARKETS AND FED POLICY IMPLICATIONS: Is the housing market in good shape or is it in trouble? Rising sales are a sure sign that there are lots of people out there who are ready, willing and able to purchase homes. But the problem is that there simply is not enough product for buyers to choose from. Housing starts are starting to come back but probably need to rise about 20% to 25% to reach levels needed to supply the demand. Meanwhile, despite rising prices and a shortening in the time it takes to sell houses, homeowners are just not bringing their units on to the market. Right now, the constraining factor in the market is supply, both new and existing, and as long as that persists, prices will rise sharply. The threat that creates is that mortgage rates might actually start rising again. The combination of higher rates and higher prices should ultimately slow down sales, but that is not likely to happen for quite some time. It’s a sellers market and it is likely to remain that way for much of the rest of the year.  

April Philadelphia Fed Manufacturing Activity, March Leading Indicators and Weekly Jobless Claims

KEY DATA: Phil. Fed: -10.8 points; Orders: -11.2 points; Jobs: +2.4 points/ LEI: +0.4%/ Claims: +10,000

IN A NUTSHELL: “The economy continues to move forward even as the manufacturing sector slows.”

WHAT IT MEANS: The more data we get, the clearer it becomes that the slowdown in consumption and the cautious spending on capital goods is taking its toll on manufacturers. The Philadelphia Fed’s Business Outlook Survey, which looks at manufacturers in the Mid-Atlantic region, dropped sharply in early April. This number is extremely volatile, so don’t read too much into the decline. Indeed, the level of activity is still quite solid. But, as can be seen in the moderation in the growth of new orders, the manufacturing is no longer accelerating as fast as it had been. But there were some good numbers in this report. Hiring is improving and worker hours are expanding. Also, expectations on capital spending were quite strong, with much of the funds being directed toward non-computer equipment and software. Firms are taking a wait and see approach, though, as most of the new investment is expected to occur in the second half of the year.

Looking forward, we could see a pick up in activity. The Conference Board’s Leading Economic Index rose solidly in April after even bigger increases in February and March. The gains were in most components, another sign that conditions could be firming. But it will still take more consumer and business spending if we are to shake off the first quarter lethargy.

Jobless claims jumped last week but that was not the big news in the report. The number of people on unemployment insurance was the lowest in seventeen years. Adjusting for the size of the labor force, we are closing in on historic lows set in the 1960s, when benefits were much less generous and less long lasting. In other words, there just are not a lot of people in the reserve army of the unemployed.

MARKETS AND FED POLICY IMPLICATIONS: While there are lots of numbers to come out over the next two weeks, we really need to focus on just two: The first quarter GDP report, which will be released on Friday, April 28th, and the April jobs report, which will come on the following Friday, May 5th. A first quarter growth rate below 1% cannot be ruled out, though I think it will be closer to 1.5%. Regardless, a low increase would set us up for another year of trend growth, which is pretty mediocre. The April jobs report should be a good measure of what are sustainable job gains. The January and February increases were excessive and the soft March number moved the three-month average to a more normal level. If the April increase is in the 150,000 to 175,000 range, we should assume the economy is not likely to accelerate sharply. That is something that will play on the minds of the FOMC members when they meet May 2-3. Don’t expect much to come out of that meeting, though a hint on when the Fed might start shrinking its swollen balance sheet could create a stir. Today’s numbers shouldn’t move investors one way or the other. Investors do have earnings reports, which continue to dribble out, to mull over.

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