All posts by joel

February Import and Export Prices, January New Home Sales and Weekly Jobless Claims

KEY DATA: Import Prices: +0.6%; Nonfuel: 0%; Export Prices: +0.6%; Farm: +0.3%/ New Home Sales: -6.9%; Prices: -3.8%; Claims: +6,000

IN A NUTSHELL:  “Cold weather and the government shutdown didn’t help the housing market at all.”

WHAT IT MEANS:  The data just don’t seem to be getting better, though it is good that inflation is going nowhere.  Import prices jumped in February but that was due largely to a surge in petroleum product costs.  The increase was known but the extent of the rise was a little more than expected.  There were also higher prices for non-vehicle consumer products.  Meanwhile, food and capital goods costs were down.  Basically, the costs of imported goods are not putting a lot of pressure on consumer buying power.  On the export side, the battered farmer got a break as prices rose.  Over the year, they are still off a little.  U.S. exporters in just about all industries managed to push through price increases. 

What happens when a bitter winter and a government partial shutdown get together?  The economy tends to go into a slowdown and that is what happened for the most part in January.  New home sales tanked.  It is hard to visit a construction site when there is snow or it is so cold you don’t want to step outside.  In large parts of the nation, that is what happened.  And then there was the hit to confidence that the shutdown created, which didn’t help either.  So it should not surprise anyone that new home sales were off sharply.  Still, the year has started off on a weak note and prices are falling, another sign of softness. While inventory is building, it is due to the slowing sales as well as the additional homes for sale.    

Jobless claims rose last week and while the level remains low, it is beginning to look as if the historic lows are behind us.  That may indicate a modest softening in the job market. 

MARKETS AND FED POLICY IMPLICATIONS:  Modest inflation means the Fed can watch the economic fundamentals more closely and there are few signs the economy is picking up the steam that it lost at the end of last year.  New home sales were soft and most indicators point to a disappointing first quarter consumer spending number.  And there is no reason to think businesses will suddenly decide to use their windfall tax gains to spend like crazy on machinery, equipment, building or software.  So, I have no idea what would drive a surge in equity prices, other than the belief trade will come around.  Tariffs have been imposed but the trade deficit widened sharply even with China, so unless we suddenly embrace free trade, I don’t really see how that sector will help significantly.  As I keep saying, a recession may not be in sight, but neither is strong growth. I am leaving for the airport to go on my annual father/son Phillies spring training trip.  It’s nice to know I don’t have to potentially fly a 737 Max8 to Clearwater.  The flight should be a lot less stressful. 

February Wholesale Prices and January Durable Goods Orders and Construction Spending

KEY DATA: PPI: +0.1%; Ex-Food and Energy: +0.1%/ Orders: +0.4%; Ex-Aircraft: -0.6%; Capital Spending: +0.8%/ Construction: +1.3%; Public: +4.9%

IN A NUTSHELL:  “Despite some decent headline numbers, the data still indicate that growth is moderating while inflation remains tame.”

WHAT IT MEANS:  The Fed is trying to read the economic tea leaves before deciding on what to do next and one thing they are watching carefully is inflation.  Well, they can probably start focusing on something else.  Wholesale prices went largely nowhere in February.  Energy costs did jump, but they were largely offset by a decline in food prices.  Excluding those categories, there were few places where prices rose with any gusto.  There were some large increases in chemical products, electronic components, appliances and cable services, of course, but otherwise, producer costs we well contained.  As for the pipeline, it is largely empty.

Will demand pick up sharply enough to move the needle on inflation?  I don’t think so.  Durable goods orders rose moderately in January but that was due to a surge in aircraft demand.  Excluding planes, demand for big-ticket items fell sharply.  The measure that most closely mirrors business capital spending did jump.  But that came after very large declines in new orders the previous two months.  Even with that increase, capital spending was up only 3.1% from the January 2018 level.  Since these data are not adjusted for prices, you can see that orders are no soaring.

Despite the terrible weather, construction spending jumped in January.  But again, you have to put that into perspective.  There were significant decline in both December and November and the level of construction was still below the October pace.  In addition, just about all the gain came from a surge in public construction as private sector activity rose minimally.  MARKETS AND FED POLICY IMPLICATIONS:It’s nice to get some decent improvement in the economic indicators, but given how soft the previous data were, you cannot read too much into those increases.The rise in retail sales in January, reported earlier this week, tells us only that we ended the year on a major down beat.The December number was revised sharply lower and that may mean fourth quarter growth was slower than initially estimated.  The revision will come out in two weeks and could show growth closer to 2% and it looks like first quarter growth could be well below 2%.  Indeed, many forecasters have it closer to 1%, a pace that as of now cannot be ruled out.  In other words, the economy lost steam at the end of last year and the while the fire in the engine has not gone out, it is not roaring either.  Since inflation is also showing no signs of becoming a problem anytime soon, the Fed members will have little to do at their meetings for quite a while.  Washington in the spring is very pleasant, so I suspect they will be taking lots of walks, especially if the cherry blossoms are in bloom.  As for investors, they have little to cheer about and lots to worry about.  There is Brexit and trade, Boeing and consumer lethargy.  March Madness cannot be coming at a better time as there are now lots of game watching to be done over the next few weeks.  Since my two alma maters, Stony Brook and Brown, didn’t make the tournament (as usual), I am stuck rooting only for local Philadelphia teams.  Of course with Villanova being one of them, there is always hope.

February Consumer Prices, Real Earnings and Small Business Confidence

INDICATOR: February Consumer Prices, Real Earnings and Small Business Confidence

KEY DATA: CPI: +0.2%; Over-Year: +1.5%; Ex-Food and Energy: +0.1%; Over-Year: +2.1%/ Real Earnings: +0.3%; Over-Year: +1.9%/ NFIB: +0.5 point

IN A NUTSHELL:  “Modest inflation and tight labor markets are helping drive up worker spending power, which hopefully will keep the expansion going.”

WHAT IT MEANS:  With the world economy slowing and uncertainty about trade continuing to restrain business decision making, something needs to improve if the economy is to pick up some steam.  Well, that just may be household spending power and modest inflation is helping that along.  The Consumer Price Index rose moderately in February, led by increases in energy and to a lesser extent, gains in food, apparel and shelter costs.  On the other hand, medical goods and used vehicle prices dropped sharply, as did energy services costs.  Excluding food and energy, prices rose minimally. Over the year, consumers have had to deal with very limited inflation pressures, though they increased somewhat more moderately when food and energy were taken out of the mix.  Nevertheless, there are few signs that inflation pressures are building.

Household spending power is determined by both wage gains and inflation.  Inflation is tame; Wage gains are not.  Hourly wage costs jumped in February, rising 3.4%, the fastest pace in a decade.  When inflation was factored in, the increase is pushing 2%, something we haven’t seen in four years.  Back then, inflation was largely flat. 

The National Federation of Independent Businesses reported that small business confidence is stabilizing after having been bashed by the economic slowdown and the government shutdown.  The index peaked in August and declined consistently until it edged up in February. 
A number of categories posted increases, including general business conditions and the outlook for expansion, but earnings were still weak and sales are going nowhere.  These data bounce around and the modest rise in February may not be a signal that conditions are starting to improve.  It could just be an improvement due to the government shutdown ending.  Let’s wait a couple of months to see if this was a start of an upward trend or just a temporary rebound. 

MARKETS AND FED POLICY IMPLICATIONS:  In general, the economic data have indicated that growth moderated fairly sharply at the end of the year.  The consumer really didn’t spend a lot of money and that is not good news for future growth.  But households have more money to spend and it is not being eaten away by inflation.  That implies we should be able to sustain moderate growth in the spring.  Unfortunately, there is simply nothing out there that says the economy will accelerate sharply.   It is hard to see what could give investors the green light other than a trade agreement that is much more than puff pastry.  That puts pressure on to not only get something done, but to get a real change in the terms of trade between the U.S. and China.  If we wind up with more puff than pastry, investors may exhale for a while, but reality could settle fairly quickly.  Given all the uncertainty, the Fed is likely to make believe it is the second coming of Rip Van Winkle and go to sleep for quite a while.  The members are in no rush to move (from under the covers). 

December Trade Deficit, February Private Sector Jobs and Help Wanted OnLine

KEY DATA: Deficit: $59.8 bil. ($9.5 bil. wider); Imports: +2.1%; Exports: -1.9%/ ADP: +183,000/ HWOL: +0.3 points

IN A NUTSHELL:  “The soaring trade deficit is troublesome, especially if job gains begin to fade.”

WHAT IT MEANS:  The markets are fixated on the trade discussions with China and for good reason: The trade deficit is soaring.  In December, it reached its widest level since October 2008, when the financial system was collapsing.  Of course, conditions are a lot different now, since we are growing decently while we were in a recession then.  But the hoped for narrowing has not happened.  Since the fourth quarter of 2016, the quarterly trade deficit has widened by nearly 18%.  In December, imports rebounded from a sharp decline in November while exports continued to decline.  As for the situation with China, the numbers for the year were ugly.  The deficit widened by nearly 12%.  Yes, exports were up, by nearly 6%, but imports rose faster.  Keep in mind, our imports from China in 2018 totaled nearly $540 billion but our exports were a paltry $120 billion.  But our trade deficit didn’t just widen with China.  It was larger against the EU, Canada, Mexico, Germany and OPEC nations.  In other words, we are funding a large part of the growth, whatever pace it may be, of an awful lot of nations.    

Friday is Employment Friday, so today is ADP Wednesday.  Okay, those are my nicknames, but when the job report is due out, we get an indication of what the level might be when ADP releases its reading on private sector payroll gains.  Not surprisingly, the increase in February payrolls is likely to come in well below the initial January government reading of 304,000.  Two things stand out in the ADP report: Construction and manufacturing continue to boom but small businesses are having a tough time getting and/or holding workers.  Larger firms, which can pay the higher costs, are leading the way.

Confirming that the labor market remains strong was the rise in the Conference Board’s Help Wanted OnLine index in February.  However, the details contain some warning signs.  Five of the nine regions posted declines in both January and February.  This may indicate that the surge in payroll gains is coming to an end and more sustainable numbers, in the 150,000 to 175,000 range, could be what we see for much of the remainder of the year. MARKETS AND FED POLICY IMPLICATIONS:The widening trade deficit, when combined with a softening of consumer spending (February vehicle sales were quite soft), points to a pretty ragged first quarter GDP growth number.  I haven’t seen any negative numbers yet, but estimates of around 1% growth are popping up all over the place.  I have dropped my estimate to 2%, but the vehicle numbers are compelling enough to take that forecast down further.  As I have noted, even if there is a trade agreement of some sort, it will not cause a sudden burst in U.S. exports to China.  That will take time and if the Chinese growth is as soft as most economists believe (forget the official numbers), it is hard to see how they can ramp up demand for U.S. products very much this year.  At least we have the massive government spending bills to fall back on, but those effects will fade as we go through the year.  So, expect growth this year to be a lot less than many had thought, though in the range of what most economists expected.

Fourth Quarter GDP and Weekly Jobless Claims


KEY DATA: GDP: 2.6%; Consumption: 2.8%; Business Investment: +6.2%; 2018 (Annual): +2.9%/ Claims: +8,000

IN A NUTSHELL:  “Growth is settling down to more normal, sustainable levels as the tax cut impacts fade.”

WHAT IT MEANS:  As expected, economic growth came in at a very solid level at the end of last year.  Of course, it is slower than the previous two quarters, which every economist outside the White House forecast. The growth rate represents a moderation not a major slowdown, a critical distinction.  For all of 2018, GDP expanded at the strongest pace since 2015.  Consumers spend solidly on just about everything, with most categories rising solidly.  Business investment was decent, though not great.  Firms purchased software and equipment and added to inventories, but didn’t build any new structures.  The level of inventory building was extremely high and likely the result of tariff fears. That could turn around sharply this or the second quarter, especially if any trade agreement is concluded.  Housing, not surprisingly, declined, a trend we could see continue for a while.  Meanwhile, the trade deficit continued to widen.  Our exports fell, largely because of lower farm sales, but imports rose. Tariff issues likely distorted the numbers.  Finally, a surge in defense purchases offset a drop in federal nondefense and state and local government spending.  Inflation remained tame, running below 2%.

Job claims jumped last week, but they remain low.   MARKETS AND FED POLICY IMPLICATIONS:The slow but steady deceleration in the economy continued in the last quarter of 2018 and we could see an even weaker number for the first quarter.  Vehicle demand has softened and coupled with the government shutdown, we are likely to see lower consumer spending in first quarter.  There was a huge surge in business software purchases and it is hard to see the excessively large gain repeated.   The inventory build looks to be unsustainable and it is not clear what will happen to the trade deficit.  I have no idea when or if a trade agreement of any kind will be consummated.  So, the best guess right now is that first quarter GDP growth will come in around 2%, give or take a quarter percent.  Basically, we are moving back to a sustainable growth pace that we experienced during most of the Obama years.  Of course, most people didn’t think that was a good growth rate, but the reality is that is what trend growth looks like.With the tax cut impacts largely done with and Europe and China slowing, it is hard to see how growth can accelerate sharply.  That is actually good news.  It means inflation is not likely to jump so the Fed can keep on its current path.  Of course, given Mr. Powell has more moves than Gayle Sayers had, who knows when the Fed will start rethinking the rethinking it rethought – or whatever.  Regardless, rates are going nowhere for a while.  As for the equity markets, the one major hope is that a trade agreement will remove the uncertainty overhanging investor thinking.  That could provide a short-term boost, but why China and Europe would suddenly buy lots more U.S. product after the initial push occurs is beyond me.

December Housing Starts and February Consumer Confidence and Philadelphia Fed’s NonManufacturing Survey


KEY DATA: Starts: -11.2%; Permits: +0.3%/ Confidence: +9.7 points/ Phil. Fed (NonMan.): +9.0 points

IN A NUTSHELL:  “The wild swings in the data continue so we shouldn’t rush to judgment on the state of the economy.”

WHAT IT MEANS:  I’ve been doing this for a very long time and while I haven’t seen it all, the current data seem awfully volatile.  Today’s numbers continue that trend.  Housing starts cratered in December, which was a surprise.  Yes, we knew that construction peaked in the spring, but the collapse at the end of the year made no sense, especially given that housing permit requests remained solid.  Indeed, during the fourth quarter of last year, permits ran nearly twelve percent above starts.  Since builders stopped spec building many years ago, that differential is likely to be narrowed in the months to come.  Of course, January is problematic as the weather was brutal.  Basically, housing is likely to be stronger going forward than the data indicate, but not strong.

Not surprisingly, consumer confidence rebounded sharply in February.  The Conference Board’s current conditions component rose modestly but the expectations component surged.  Basically, the government shutdown ended and so did the total disgust with Washington.  Now we can go back to being only disgusted with Washington.   

As far as business activity is concerned, the Philadelphia Fed’s NonManufacturing survey rebounded sharply in February.  Again, special conditions were at work.  The frigid weather, coupled with the government chaos, led to a huge drop in the index in January. With conditions improving in February, it was hardly a shock to see the current and future conditions measures jump.  The Richmond Fed’s Manufacturing Index posted a similar pattern, as activity rebounded in February after a January lull.

MARKETS AND FED POLICY IMPLICATIONS:  On Thursday we get the first (and in this case second as well) reading on fourth quarter GDP growth.  Don’t expect anything great.  Indeed, only a possible large increase in inventories may have kept the number from coming in below 2%.  Housing should be one of those components that will depress the growth rate.  But neither consumer nor business spending look like they were stellar.  I still think the estimate should come in somewhere between 2.00% and 2.50%, but given the wild swings in the data, I am not sure.  Regardless, the economy is moderating and we are headed back to more normal growth, which is roughly about 2.25%.  That is neither too cold nor too hot, which means the Fed should be able to maintain its cautious approach to monetary policy.  Indeed, Fed Chair Powell, in his semi-annual testimony to Congress, reiterated that today.  The Fed could reconsider raising rates, but it will take stronger growth for it to start hiking again.  As I have noted before, I think that is a mistake.  The current level of the funds rate is not high enough to provide much ammunition if the economy falters.  The idea was to get back to normal.  Since the Fed keeps arguing that rate policy is its primary tool, by failing to raise rates to higher levels when the economy is in good shape, and it is, the members are betting they don’t face a major recession in the relative near term.  I hope they are correct. 

December Durable Goods Orders, January Existing Home Sales, February Philadelphia Fed Manufacturing Activity and Jobless Claims


KEY DATA: Durables: +1.2; Ex-Transportation: +0.1%; Capital Spending: -0.7%/ Existing Home Sales: -1.2%; Prices (Over-Year): +2.8%/ Philadelphia Fed (Manufacturing): -21.1 points/ Claims: -23,000

IN A NUTSHELL:  “With housing and manufacturing slowing further, it appears the bloom is off the economic expansion rose.”

WHAT IT MEANS:  We are still one week from getting the first reading on fourth quarter 2018 GDP, but things are not looking up for the number.  In a report delayed by the government shutdown, durable goods orders rose solidly in December.  However, much of that gain was derived from a 28.4% surge in nondefense aircraft orders.  The rest of the economy, excluding Boeing, didn’t do nearly as well.  Motor vehicle orders rebounded and demand for fabricated metals was up, but there were negative signs on the computers, communications equipment, machinery, electrical equipment and primary metals components.  But most troubling, the indicator of private sector investment spending, capital goods orders excluding aircraft and defense, fell sharply again.  Whatever business spending boom we got from the tax cuts looks like it has dissipated.  Also, backlogs are declining and inventories are growing faster than order books, which isn’t a great sign for future capital spending. 

A second indicator of growing economic weakness was the report by the National Association of Realtors that showed existing home sales continued to fade in January.  Yes, it was bitterly cold, but the slowdown has been going on for a year now and there is no indication that the latest data are anything but a continuation of that trend.  Housing prices are rising slowly, further reinforcing the belief that the sector is soft.  Finally, despite the weakening demand, inventories remain well below healthy levels.  It is hard for buyers to find a house they want given the low level of supply.

If the slowdown in housing and manufacturing were not enough, the Philadelphia Fed’s February report on regional manufacturing activity turned negative for the first time in nearly three years.  However, we shouldn’t read too much into this report as the weather was brutal, hiring remained strong and the outlook for the future held up quite well. 

Finally, unemployment claims declined back to what are more normal levels last week.  I had warned that the data were volatile due to the government shutdown and cold weather, and that looks to have been the case. 

MARKETS AND FED POLICY IMPLICATIONS:  The economy is coming off its tax-induced sugar high.  No surprise there, except it might be a little quicker than expected.  The biggest concern is that the tax cuts didn’t bring forth nearly the gains in capital spending that many had hoped for.  Economists had warned that would likely happen, but we still held out hope that the past, limited reactions to tax cuts by businesses would not be repeated this time.  Well, this time was just not different.  The Fed, in the minutes of the January 29-30 meeting released yesterday, made it clear that it would be cautious going forward.  The members did remind everyone that increases in rates could not be ruled out if there were a rebound in growth and inflation.  Hardly anything new there.  What was new was a clarification of the balance sheet normalization process.  The run down is likely to end later this year at a level above what was expected.  The members want to build in some flexibility, which makes sense, especially since this is new ground for the Fed.  For investors, the data don’t paint a picture of strong growth going forward.  Again, economists warned that the likelihood of an extended period of 3% growth was small and that too appears to be coming true.  I guess we can be right every once in a while.        

January NonManufacturing Activity

KEY DATA: ISM (Nonman.): -1.3 points; Orders: -5 points; Jobs: +1.2 points/ Markit (Services): -0.2 point

IN A NUTSHELL:  â€œThe nonmanufacturing portion of the economy is still solid, but growth, as expected, is fading slowly.”

WHAT IT MEANS:  While the government data mills try to dig out from the partial shutdown, the private sector keeps churning out its numbers.  Today we got two readings on the nonmanufacturing portion of the economy and both showed continued solid growth but at a decelerating pace.  The Institute for Supply Management’s NonManufacturing Index dropped moderately in January.  The level tied the lowest over the past year.  Of significance was a sharp slowing in new orders growth.  On the other hand, job growth accelerated and backlogs expanded faster, so conditions are not that bad. 

Confirming the modest slowdown in the services was a small decline in the IHS Markit Services Index.  Yes, there was a drop, but the level remains high and that indicates growth in this sector is still quite solid.  Indeed, the commentary indicated that demand remained strong, though not quite as good as it had been.   

MARKETS AND FED POLICY IMPLICATIONS:  The economy is in very good shape, despite all attempts by Washington to make sure that would not be the case.  The manufacturing sector continues to boom while the moderation in services activity is not particularly great.  But as almost every economist has noted, the impacts from the tax cuts can last only so long and we are beginning to see them fade.  It is impossible to determine how quickly the economy will come down from its sugar high, but I doubt it will suddenly collapse and take a nap.  There is still hope that businesses may actually invest more this year.  Of course, with over one trillion dollars in corporate buybacks vacuuming up much of the tax breaks, I am not counting on that happening.  But, we can always hope.  Since we will not get the first reading of fourth quarter GDP growth until February 28th, we will be flying somewhat blind on exactly how well we were doing going into the shutdown.  The consensus is for something in the 2.5% range, which seems reasonable and representative of the expected movement back toward trend growth.  As for investors, there is the State of the Union speech tonight, the steak dinner meeting of the president and Chair of the Federal Reserve and tepid comments about a trade agreement with China to contend with.  Today’s numbers will likely go largely unnoticed.   

January 29,30, 2019 FOMC Meeting


In a Nutshell:  â€œIn light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate…”

Decision: Fed funds rate target range remains at 2.25% to 2.50%.

The Fed has decided that it no longer has to do anything.  No, it hasn’t declared victory, but it has capitulated to the will of the markets and the reality of a slowing world economy.  The members, and especially Chair Powell, will sharply disagree with that characterization, but basically, the FOMC gave the markets everything it hoped for: No rate hike, a clear indication that conditions would have to change for the Fed to hike rates again and a willingness to slow the normalization of the balance sheet.  All this came after having indicated just four months ago that the Fed was a “long way” from getting to neutral.  Since then there has been exactly one rate hike, which is hardly a long way.

So, what has changed?  First, the tariff/trade war with China has harmed not just Chinese growth but the world economy as well.  Europe is suffering and U.S. economic growth is moderating.  When the three largest economies are in a slowdown, it is time to stop, look and listen.  Then there was the market meltdown.  First, the culprit was the Fed raising rates too much, but that made absolutely no sense.  Rates are still low, unless you think zero interest rates are normal.  Then the Fed’s reduction of the balance sheet was attacked, since it was reducing liquidity.  But the Fed’s balance sheet is still way too large, so that was a red herring.  Basically, investors wanted to blame everyone but themselves for the meltdown and they succeeded in pinning it on the Fed. 

So, where is the Fed now?  First, Mr. Powell, by saying the “case for raising interest rates has weakened somewhat”, basically changed the paradigm.  Now, the Fed has to see there is a reason to hike rates.  Mr. Powell indicated that inflation is likely to be the key.  So, as long as inflation remains well contained, the Fed is on hold.  That should anchor short-term rates at a lower level than expected.

As for the balance sheet, which is more technical but still important, the pace will continue, though it could be changed, and the end point will be a lot higher than expected.  The Fed will likely stop reducing the balance sheet, nicknamed quantitative tightening or QT, about a half trillion dollars above where previously expected.  That is about nine months sooner. 

The markets, not surprisingly, loved the FOMC statement and the Fed Chair’s press conference as they gave investors everything they wanted.  And there is good reason to show caution, as the outcome of the trade situation is still not clear.  But it sure looks like this Fed Chair may believe in a triple not dual mandate: Maximum employment, stable inflation and a solid equity market. 

 (The next FOMC meeting is March 19,20 2019.) 

INDICATOR: January Private Sector Payrolls and December Pending Home Sales


KEY DATA: ADP: 213,000; Construction: 35,000; Manufacturing: 33,000/ Pending Sales (Monthly): -2.2%; Over-Year: -9.8%

IN A NUTSHELL:  “Even in the face of the partial government shutdown, January job gains could be better than expected.”

WHAT IT MEANS:  The broken record that I am keeps saying that the underlying economy remains solid and the issues with the equity markets are not the result Fed tightening or a realistic estimate on when the next recession could start.  So, it’s time to start focusing again on the economic fundamentals and Friday’s jobs report should give us some insight into how businesses reacted to the political absurdities versus the real economy.  If the ADP estimate of January private sector payroll growth, the shutdown may have been much ado about nothing.  The employment services firm’s reading of job gains came in above expectations.  The increases were widespread, with small, medium and large firms adding similar numbers of workers and just about every industrial sector hiring as well.  What is eye opening was the continued outsized jump in manufacturing and construction payrolls.  Together, they make up less than 16% of private payrolls, but the rise in those sectors accounted 32% of the January increase.  That surge is not sustainable.  In addition, firms that fall into the 500 to 999-worker range have also been adding workings at an elevated pace.  The implication is that job gains may remain good, but don’t expect continued large increases in private sector employment

As for the housing market, well things don’t look that good.  The National Association of Realtors reported that pending home sales eased again in December and were off by nearly ten percent from the December 2017 level.  For all of 2018, pending sales were of by 3.5%.  You have to sign contracts to have closings so the consistent drop in pending sales signals future weakness in existing home sales.

MARKETS AND FED POLICY IMPLICATIONS:  Today’s data reinforce the view that businesses are still seeing strong demand and as a result, are hiring more workers.  But there is also growing weakness in the housing market.  The FOMC is finishing off its meeting and we should know the members’ thinking in a little while.  Caution is likely the operative word, though the ADP jobs report, if born out by a solid government number on Friday, would not support that attitude.  The economy is in good shape, for the most part.  What is failing is government policy and that is creating chaos that is hurting the equity markets.  The Fed, in my view, is overreacting to the equity market issues.  But I want to hear what Mr. Powell has to say before making any further comments.