KEY DATA: ISM: no change; Orders: +1.7 points; Employment: -1.7 points/ Confidence: +2.9 points; Construction: -0.6%
IN A NUTSHELL: â€œConsumers may be smiling more but they are not making manufacturers happy.â€
WHAT IT MEANS: The manufacturing sectorâ€™s winter malaise appears to have stretched into the spring. The Institute for Supply Managementâ€™s April Manufacturing index indicated that the sector is growing, but not at a particularly solid pace. The details of the report were somewhat strange, though. New orders, including imports and exports, rebounded. That would seem to be good news, especially since firms ramped up production to meet the growing demand. Yet employment was down. With order books thinning, it is not clear when job growth will accelerate. And to confuse the matters more, fifteen of the eighteen industries reported they were growing. So you tell me what is going on here and we will both know.
The consumer will ultimately determine the direction of the manufacturing sector. Wage gains are accelerating and with that, confidence is improving. The Thompson Reuters/University of Michigan Consumer Sentiment index jumped in April, as both the perceptions of current conditions and expectations for the future were up. The index reached its second highest level since 2007. This report, though, contradicts the Conference Boardâ€™s finding that household confidence fell in April. Thus, it is hard to say what people are really thinking.
Construction activity moderated in March as residential building pretty much tanked. There was also a sharp decline in public construction. The only bright spot in the report was the rise in private nonresidential building. With permits exceeding starts, I expect that we will see construction rise solidly in April and May.
MARKETS AND FED POLICY IMPLICATIONS: So far, the hoped-for rebound remains just that: A hope. Some data are solid, some are soft and some are, well, totally confusing. It is hard to argue that the manufacturing sector is getting a lot better, even if orders are improving. Consumers are feeling better, or not, depending on which survey you like. And wages are rising; at least it looks that way. So, what does this all mean? Got me. This weekâ€™s data have provided no road map to the future. Maybe next weekâ€™s employment report will clarify things, at least I hope so. We have six weeks before the next FOMC meeting, so like the weather, if you donâ€™t like the data, just wait a day. While economists may be willing to watch things evolve, traders donâ€™t have quite that attention span. But is bad economic news good news for the markets or bad news? And what about the bond market? The 10-year Treasury rose above 2.10% for the first time in six weeks. Huh? I guess with the dollar seemingly on a downward trend, there is concern that inflation could accelerate and the Fed may be able to raise rates. As I said, the data are showing no strong pattern and with the FOMC members saying they are focusing on the data, this is not a good time for confusion.