Everyone’s Favorite Blame Game
Manufacturing activity rebounded in March, with the ISM manufacturing index coming in at 55.3, ahead of the 54.2 print in February and economist estimates of 54.5. If you remember the Philly Fed Survey from a few weeks ago, it wasn’t clear what to expect from this report but most of the data pointed to stabilization of the manufacturing sector that’s been weakening since the fall last year. Components of the index were encouraging – new orders increased 1.9 points, production increased 1 point, and employment actually showed significant strength rising 5.2 points. The ISM services index, however, expanded at the slowest rate in 19 months, falling to 56.1 from 59.7 last month. Surprisingly, trade wars didn’t seem to dominate the commentary from managers surveyed for the manufacturing index but did seem to be topical for the services index. Excited for the day when we can no longer blame this trade war for economic data.
Moral of the story: Historically, an ISM index above 50 has been indicative of an expansionary economy and anything above 55 is pretty fantastic. This month’s data are in line with the Fed’s expectation for 2Q to come back after the weakness we’ve been seeing in 1Q data, and sentiment from managers for both surveys was largely positive. Markets took all this as good news and rose on the tail of both reports.
Retail sales have been wildly volatile since fall of last year and it seems like we keep getting mixed signals, but there’s a general trend and it’s definitely indicative of slowing consumption. Retail sales came in at -0.2% for February, slowing for the second time in the last three months. The mixed signal this month comes from the January number, which was actually revised up to 0.7% from the previously reported 0.2% gain.
Moral of the story: While consumption seems to be slowing, especially compared to last year’s prints that were boosted by the tax cuts, we’re finally seeing wage growth in the labor market, which should eventually flow into the economy in the form of consumption.
Oh Thank Goodness…
Remember how brutal last month’s jobs report was? Thankfully, the March report brought back some life into the labor market with the creation of 196k new jobs while unemployment remained unchanged at 3.8% and wages continued to rise at a steady clip above 3%. The strength for this report was widespread across many different sectors with healthcare leading the way and manufacturing and retail showing signs of weakness (see above, not surprising tbh). The report also included an upward revision of the February report to 33k from 20k, which brings us to a monthly average of 180k new jobs so far this year, which is actually pretty fine.
Moral of the story: This was honestly the Goldilocks report – not too strong that it would warrant any immediate action from the Fed but also not too weak that it would generate widespread panic on the state of the economy. This report, in conjunction with news of “swift progress” on a trade deal with China, was received well by the markets. The real test of the economy will be during earnings season, which is somehow already here again, buckle in for a bumpy ride starting this coming week.