INDICATOR: March Retail Sales, Leading Indicators and Weekly Jobless Claims
KEY DATA: Sales: +1.6%; Vehicles: +3.1%; Gasoline: +3.5%/ LEI: +0.4%/ Claims: -5,000
IN A NUTSHELL: “The economy appears to have thrown off some of the winter lethargy and is growing again at a decent pace.”
WHAT IT MEANS: When in doubt, panic. At least that seems to be the motto of those who worry about each and every data point released, such as most investors. Even the Fed, in particular Chair Powell, seemed to have subscribed to that approach. But as more level-headed economists argued at the end of last year, the market crash made no sense when the fundamentals of the economy were analyzed and now we are seeing that a “wait and see” approach was the right way to go. Consumer spending rebounded sharply in March led by a jump in vehicle demand. We need some time to see if the March vehicle sales were just a one-month wonder, but at least purchases didn’t fall off the cliff. There was also a major increase in gasoline sales, but those were largely price driven. Still, there was only major component, sporting goods/hobbies/musical instruments, etc. that declined and that was modestly. Over the year, non-inflation adjusted sales were up 3.6%, a decent gain, though nothing special given the roughly 2% inflation rate. With consumption rebounding, first quarter growth is likely to come in a little better than expected and it sets up a solid second quarter number.
The Conference Board’s Leading Economic Indicators index jumped in March, led by improving labor markets, expectations and financial markets. The Coincident and Lagging Indices rose modestly. Still, as the report noted, “the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year end.” So, don’t look for robust growth coming anytime soon.
Jobless claims, incredibly, continue to drop. The level is almost incomprehensible, given the size of the labor force and the dynamism of the economy. There seems to be almost no turnover. What makes this so weird is that wage gains have stabilized despite what appears to be a drum-tight labor market.
MARKETS AND FED POLICY IMPLICATIONS: The Fed has tried to give itself an out by reiterating that a rebound in growth could make them rethink their stance. I am not saying growth is so strong that the Fed will actually do that, but it is clearly not so soft as it believed it to be when it suddenly decided it would do nothing this year. First quarter GDP growth should be in the 2% range but could be higher if inventories increase rapidly. That would help the first quarter. But if, as believed, those additions to stock were unintended, it would pull down second quarter growth when firms push back orders so they can whittle down their excessive inventories. That points the need to look at the trend in growth, not just the data on one quarter. Of course, I raise the point of not giving too much credence to any one number constantly and that warning goes unheeded, but I will keep on trying. As for investors, they should like today’s reports though a certain report may dominate the discussion.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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