There was enough good news in this morning’s February jobs numbers to keep alive hopes that the recent sluggishness in the U.S. economy is “only cold weather.”
But with the Standard & Poor’s 500 at new all-time highs this week, I’ve got to wonder how long the “I’ll gladly give you job growth tomorrow for another 1% advance in the stock market today” scenario can run.
At some point the economy needs to deliver something other than mediocre job growth.
In February net nonfarm payrolls added 175,000 jobs. That was above the consensus among economists surveyed by Briefing.com of 163,000 net new jobs for the month. The Labor Department also revised its estimate of job additions in January to 129,000 from the prior 113,000. The unemployment rate inched upwards to 6.7% from 6.6% as more workers searched for jobs.
The worst part of the monthly report was that the stronger than expected jobs number didn’t add more to wages in the month. Read more
This morning’s January jobs number was disappointing. The economy created 113,000 net new jobs against a consensus among economists surveyed by Briefing.com of 175,000. The very, very disappointing December total of 74,000 was revised upward, but only by a tiny 1,000 jobs.
And yet the U.S. stock market is up strongly today. As of 2:30 p.m. New York time the Dow Jones Industrial Average was up 0.93% and the Standard & Poor’s 500 was up 1.15%.
It’s important to try to figure out why. Even if you conclude the market is wrong, you need to know what it is thinking since it’s that thinking that drives stock prices in the short run.
Here’s my survey of possible reasons: Read more
I think tomorrow’s jobs number for January is likely to have a big effect on the markets. But I’m not sure we’ll really learn much of anything about the economy because of uncertainties in the data.
I know what the financial markets want to hear—that the paltry 74,000 jobs added in December was an anomaly, that the initial December total has been revised upwards, and that the January total at least matches the consensus forecast of economists surveyed by Briefing.com of 175,000 net new jobs
Those results would argue that the strength in today’s initial claims for unemployment—a decline of 20,000 in the weekly total for the first drop in three weeks—and the improvement in the Purchasing Managers Index for the service sector to 54 in January from 53 in December are truer indications of the strength in the U.S. economy than the drop in the Purchasing Manager’s Index for manufacturing or disappointing retail sales numbers.
But although I think that kind of news would move global stocks higher—and disappointing numbers would push them lower—I’m not sure that the data will mean as much—one way or the other—as the market wants in its current search for direction.
Why ? Read more
When we checked in with the global economy last week, the numbers had raised questions about growth in developed economies. A pick up in growth in the world’s developed economies is supposed to offset a dip in growth in the developing world in 2014.
A parade of economic data this week will go a long way to confirming or refuting those worries.
In the U.S. consumer spending climbed 0.4% in December on top of a 0.6% increase in November. The November increase was the largest gain in five months. But consumer incomes didn’t show a comparable increase as salaries and wages came in close to flat for December. That brought income growth for all of 2013 to 2.8%, the weakest performance since an actual decline in 2008 of 2.8%. The anemic growth in incomes raises questions about the sustainability of the growth in consumer spending. If you’re an optimist about 2014, you believe that job growth will add to consumer income. A belief in job growth in 2014 depends, in turn, on a belief in increasing global demand for U.S. goods and services, and continued strength in housing and auto sales.
In Europe the latest data show unemployment in the EuroZone remained stuck at 12% in December and inflation actually moved slightly lower to 0.7% in January. Read more
Global financial markets are believers in growth again today.
Yesterday what the headlines are calling “solid” (but I’d call tepid) retail sales growth in December reassured investors and traders that the U.S. economy wasn’t about to slow down. (That was last week’s fear, after all.
And today we have new forecasts from the World Bank (echoing comments from the International Monetary Fund) for higher growth in the global economy in 2014.
On the return of optimism about economic growth the U.S. Standard & Poor’s 500 was up 0.53% as of 3 p.m. New York time. The German DAX finished the day up 2.03%. And the Japanese Nikkei 225 closed up 2.5%.
Retail sales (excluding volatile auto sales) in December climbed 0.7% in December. That was the largest increase in 10 months. Including autos retail sales climbed 0.2%. Economists had expected an increase of just 0.1% in December. Revisions took November’s growth down to 0.4% from the previous 0.7%.
Other than the very real possibility that the miniscule “beat” for December came from sales pulled from the November revision, the story for holiday sales suggests the limits of the good cheer in these numbers. Holiday sales (excluding autos, gasoline, and restaurant meals) rose 3.8% in the 2013 holiday shopping period, according to the National Retail Federation. That was a higher growth rate than in 2012, it’s true, but not by a whole lot. Holiday retail sales in 2012 grew by 3.5%. And, reports the Retail Federation, the holiday period saw heavy discounting that ate into profit margins. Exactly how big the profit erosion was won’t be totally clear until we get reports from individual retailers during the fourth quarter earnings season.
The World Bank increased its growth forecast for the global economy to 3.2% in 2014. That’s up from 2.4% in 2013 and marks a big increase from the 3% growth the World Bank forecast for the global economy in 2014 back in June 2013. Developed economies are the source of the higher forecast with the World Bank raising its economic projections for developed economies to 2.2% from the previous 2% growth on improved growth in the United States and Japan and a bottom for Europe’s economies.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.