Today’s employment report shows a strong increase in jobs along with rapidly rising wages. No surprise here. Overall, the economy is growing at a moderate 2 percent to 3 percent annualized rate.
The Week That Was
Today’s March employment report shows a strong rise of 426,000 private payroll jobs, a 4 percent annualized increase. Average weekly earnings increased at a 5 percent annual rate, and the unemployment rate declined to 3.6 percent. As expected, the economy continues to perform well.
Yesterday’s report on February consumer spending and incomes shows the economy probably grew at a moderate 2 percent to 3 percent annualized rate in the first quarter.
After adjusting for inflation, consumer spending was up at a 3 percent annual rate, and wages and salaries up 1 percent, annualized from the fourth quarter.
The Fed’s favorite inflation measure was up 6 percent from a year ago, but many areas show much higher rates.
Weekly unemployment numbers show March initial unemployment claims at close to 200,000, where they have been since December. The mid-March number of people receiving unemployment insurance hit a new low of 1.3 million.
Things to Come
Later today, the March ISM survey of manufacturers should show relatively strong activity, with readings in the high 50s.
On Tuesday, the ISM survey for service companies also should indicate a relatively strong performance. The expectation for strength comes from the earlier March Markit survey, which revealed a pickup in business activity, new orders, and backlogs.
Market Forces
Investor nervousness continues to produce highly erratic moves in stock prices.
This week started with substantial gains, then ended by giving back the gains. By yesterday, most stocks ended the week unchanged.
Daily moves in stock prices are usually in response to major news events. The gains earlier in the week appear consistent with a promise that peace talks could end the war. The declines later in the week reflected the lack of progress in the talks and with Russian troops being exposed to radiation at Chernobyl.
Most technical stock market indicators remain negative.
The S&P500 is in the best shape: it is the only major index above its 200-day average. All others have failed to move above key resistance levels.
Economic indicators for March point to moderate growth of 2 percent to 3 percent annualized. Rapid inflation continues to eat away at increases in spending and incomes.
After a sharp increase, longer-term interest rates have leveled off. The spread between the two-year Treasury and the 10-year Treasury is currently a mere 0.01 percentage point. The narrowing of this spread suggests the Fed will be able quickly to contain inflation by rapidly raising short-term rates. This is highly unlikely. Although the flood of money entering the economy slowed a bit in March, it will take much more than slowing to offset the surge this past year.
With little change in the S&P500, the index remains 29 percent above its underlying value. The market is highly erratic and news-driven at present.
Outlook
Economic Fundamentals: mixed
Stock Valuation: S&P 500 overvalued by 29 percent
Monetary Policy: highly expansive
