Friday’s jobs report shows the economy roared back in March with a massive gain of 780,000 private sector jobs. With new orders soaring, expect further gains in the months ahead.
The Week That Was
The big gain of new jobs in March lowered the unemployment rate to 6.0 percent. Employment remains about 5 percent below its prior peak reached in February of last year.
Weekly employment data confirm that employment gains continued through the month. Initial unemployment claims continued to trend lower, as did the number of those receiving unemployment payments. High government payments are still making it difficult for small businesses struggling to hire.
In other news, the ISM survey of manufacturers soared in March as almost every area recorded an increase from February. The composite index registered a strong score of 65, and the new orders component was 68. Price increases were highest, with a score of 86, indicating coming inflation.
Things to Come
This week’s ISM report for service companies should provide further evidence for a booming economy. As with manufacturing, the advanced survey from Markit indicated both manufacturing and service companies experienced booming business conditions in March.
The only other scheduled economic news this week is the release of the minutes from the Federal Reserve Board’s (Fed) most recent meeting. It is unlikely to provide any significant new information.
Market Forces
After leveling off during the first three months of the year, stock prices appear ready to resume their upward trajectory. The ongoing massive creation of money by the Fed remains the single most powerful force driving up stock prices and spending.
True to form, President Joe Biden and the rest of the Democrats are doing what they can to cripple the economy. The latest move is a significant tax increase on top of an already explosive spending plan. This is the same progressive agenda that caused the economy to stop growing five times since 1913.
Growth seldom stops immediately. It can be extended by rapidly increasing the money supply. With the Fed promising to continue to spike the punch bowl for the next two to three years, growth can continue. No one knows for sure how long the sugar high will last before the crash, but I figure that it can continue for at least the next three months.
Inflationary pressures are building at the wholesale level. By year’s end, if not sooner, members of the Fed will begin to question the wisdom of continuing to throw more kindling on the inflationary fire.
Amid the buildup in inflationary pressures, the most important financial strategy for investors is to avoid longer-term fixed-income securities.
As for stocks, the S&P500 remains about 18 percent above my estimate of its fundamental value. Even so, the ongoing monetary stimulus is likely to drive stock prices higher in the period immediately ahead.
Outlook
Economic Fundamentals: positive
Stock Valuation: S&P500 over-valued 18 percent
Monetary Policy: highly expansive