Economic Reports Scorecard

The incoming economic data has improved since the last update with a plethora of reports coming in better than expected. This is the longest run of better than expected data we’ve had in some time and encompasses a wide variety of indicators. Most surprising I think is that we are seeing a bit of an upturn in manufacturing activity. It isn’t much and much of it is anecdotal but there has been a definite improvement. All the regional Fed manufacturing surveys are positive, the ISM report was better than expected and factory orders improved. Wholesale sales also rose more than expected while inventories fell reducing the inventory/sales ratio – although that metric is still quite high compared to recent history. 

Employment continues to be a bright spot with jobless claims still tracking at 1970’s levels, JOLTS showing a rise in job openings and the Labor Market Conditions Index back in positive territory. But let’s not get too exuberant; there are still big problems with this labor market. The drop in the unemployment rate was – again – a result of a falling participation rate. The JOLTS report did see a rise in openings but the year over year hiring rate is down. Manufacturing employment was down again in the official employment report along with average hourly earnings while the average work week is stuck at 34.4 hours. Headline jobs are still positive but the rate of improvement, which was already pretty anemic, is slowing. The unemployment rate, at 4.6%, doesn’t even come close to providing a complete picture.

The short term upturn in the economic data is just that so far – a short term improvement. The changes we’ve seen in our market indicators, as I said in the last update right after the election, are pretty mild so far. The biggest changes have been in consumer attitudes as both consumer confidence and sentiment have improved pretty dramatically. I would caution though that those metrics are mere wind vanes and can change rapidly – they are always best right before recession and so offer little guidance as to the future.