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Saturday, May 8, 2010

Economic Data Summary: Week Ending May 7th, 2010

This was an unambiguously positive week for economic data. If you don't have a lot of time on your hands, take that much from this post. Nearly every single indicator is moving in the right direction and most are improving in a big way.

As before, I will provide a brief description of why the data set is important if I have not covered it before.

April Employment Report

Bureau of Labor Statistics Link

For the uninitiated, this is arguably the most widely watched economic indicator and the one with the greatest impact on markets. What's nice about it is that the Bureau of Labor Statistics releases the data for the previous month within no more than 9 days of its completion and sometimes as little as 2. It is thus very timely and of very broad scope. Timeliness and scope are the two major factors that give an economic report its market moving potential.

Importantly, remember that the unemployment rate and the headline number of job creation are derived from two different series. The unemployment rate is derived from the Household Survey of employment, which is a monthly survey of approximately 30,000 households. The Establishment Survey is used to determine the number of non-farm payrolls created or lost in the course of a month. This is a survey of north of 300,000 employers covering a huge chunk of total employment. As such, the non-farm payrolls number is the more accurate as well as the more important of the two. The unemployment rate is an interesting talking point, but is not necessarily an accurate snapshot at any given time of labor force utilization, regardless of what measure you use.

So what happened in April? 290,000 non-farm payrolls were created and the unemployment rate edged up from 9.7% to 9.9%. Job gains were also revised up in March and February. The slight increase in the unemployment rate has to do with job seekers becoming encouraged by labor market conditions and returning to the labor force. The several hundred thousand if not millions who exited the labor force during the prior two years kept unemployment from rising more and will also keep it from falling too rapidly as jobs start coming back.

Gains were very widespread with the diffusion index for employers shooting up well over 60 at 64.3. This is well within the range of a healthy economic expansion, indicating far more employers are adding jobs than cutting them. Really impressive is how much manufacturing is coming back with 79,000 jobs created there in just the last three months. Of course, losses in manufacturing were enormous during the pit of the recession such as in April of last year when 149,000 jobs were lost, but this is a good sign. All major categories also gained jobs.

Now, I think the most important figure from a macroeconomic perspective is the aggregate weekly hours index. The reason is that this indicates what is the total amount of work happening in the economy. Theoretically, weekly hours could be declining while payrolls are rising and vice versa. As such, aggregate weekly hours is the best indicator of demand for labor. It has also risen substantially from the bottom last year :

Importantly, this is recovering far more rapidly than it has in the prior two recessions. Those expecting the slow "jobless recovery" that we got used to recently might, I will emphasize "might", be surprised.

April ISM Manufacturing and Non-Manufacturing Surveys

ISM Manufacturing Survey Link
ISM Non-Manufacturing Survey Link

For those who remember the post on the Chicago PMI and regional Federal Reserve indexes, these are the same sort of survey based diffusion indices. There is relatively little more to add to them except to say that they have much more sway on the market. The ISM manufacturing index in particular has historically had one of the most dramatic impacts on market movements of any indicator. This is because it is a national survey of manufacturing that is released on the first trading day of the month for the prior month. Manufacturing is the best leading indicator of the economy as a whole and the survey comes out right after the month is over. The non-manufacturing index is conducted in the same way, but even though it covers a larger sector of the economy it has a shorter history (only has been conducted since 1997) and seemingly worse tracking to the overall economy.

The ISM manufacturing index registered at a very strong 60.4%, indicating a very strong rate of expansion in manufacturing. Importantly, the new orders index came in at 65.7% with 52% reporting better orders and only 8% reporting lower orders. Put simply, this is beyond strong and indicates continued moderate to high rates of overall economic growth over the next few months at least.

The non-manufacturing index came in at 55.4%, which is fairly solid. The business activity index rose to a whopping 60.3% with 39% reporting higher activity and only 10% lower activity. Employment was a little weak, but the monthly employment report out of BLS contradicts this.

March Construction Spending 

Census Bureau Construction Spending Link

This is pretty self-explanatory. It represents annualized outlays on private non-residential, private residential, and public construction projects. As it trails by more than a full month, it does not have particularly much market impact.

In March, spending rose by 0.2%, but this was driven almost entirely by public expenditures. Private non-residential and residential outlays fell by 0.7% and 1.1% respectively. Construction outlays have proven to be a continued source of weakness and non-residential in particular is unlikely to recover any time soon.

Jobless Claims

DOL Jobless Claims Link

Claims fell a little to 444,000, but they had been upwardly revised for the prior week. The level of jobless claims is proving stubbornly high, but it doesn't seem to be correlating with weakness in the labor markets. If this level correlates with what we saw in April's employment report, then it is good news, but this has clearly become harder to interpret.

April Car Sales, Personal Income and Spending, and April Chain Store Sales

Car sales in April were down a little from March as incentives were reduced, but still are on a recovery track. That said, at an 11.2 million annual rate, these are still very low levels of car sales.

Personal income and spending for March you would think would be a more closely followed report, but it really doesn't tell us much we didn't know already due to more timely indicators. Nonetheless, both income and spending showed strength in March. Spending was mainly bolstered by depleted savings and government transfer payments, so the trends of March will be difficult to repeat for long. However, with employment growth resuming, the "quality", for lack of a better term, of future consumption growth will likely improve. Link

April chain store sales were weak due to both bad weather in certain parts of the country and, more importantly, the shift of the Easter holiday. When the Census Department releases its Retail Sales report next week we will get a better sense of it. Normally these reports have a  large influence on the markets due to their timeliness, but this week it was hard to tell due to the strangeness of Thursday.

Anyway, these and other reports are summarized on the Bloomberg Calendar

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