For months now the US has been strengthening as Japan, Europe, and China struggle. Data last week showed a reversal of that trend. Will it be short lived or a sign of changing economic conditions?
Employment weakened as private payrolls only added 189K jobs, unemployment remained unchanged at 5.5%, and the participation rate slipped to 62.7%. On the bright side new unemployment claims fell 20K to 268K, ongoing claims fell 88K, and softening employment data likely points to delayed rate action by the Federal Reserve Board (FRB).
PMI data was mixed last week. Chicago PMI fell into contractionary range at 46.3 (50 marks the line between contraction, under 50, and expansion, above 50). At the national level, manufacturing PMI climbed to 55.7.
Housing data surprised as construction spending decreased 0.1%, S&P Case Schiller Home Price Index (20 City) increased 4.6% for the year through January. Both pieces of data are likely subject to soft sales through a harsh winter. A good sign for the industry is that pending home sales increased 3.1% over the month of March.
Likely much of this data can be contributed to an abnormally harsh winter and we should see improving conditions during the 2nd quarter. That of course is assuming that oil prices continue to slowly re-emerge and consumption stays strong.
Manufacturing in China came in a hair over expansionary at 50.1. Another measure, by HSBC, had manufacturing measured as 49.6. Europe showed signs of life as well, as they took advantage of a favorably weak € in order to improve their export environment. Manufacturing came in as expansionary and core prices increased after suffering declines at year end.
Likely what we are seeing is the immediate impact of quantitative easing in the Eurozone and more accommodative policies in China. While the signs last week showed improving conditions across the globe, one week does not make a trend! Likely we will start to see data improve internationally, all be it slow to advance. Also, perhaps a re-coupling of global economic activity as opposed to the recent decoupling. So, yes… April Fools… no matter how you cut it!
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