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Recent US economic data has raised some questions among investors as to the sustainability of the economic expansion. We share some of those concerns as confidence remains tenuous, the political situation is messy, the European debt crisis rages on, and Chinese growth has slowed. But we maintain confidence that the economic expansion is continuing and should continue for the foreseeable future.
The Institute for Supply Management's (ISM) manufacturing survey rose to 53.4, with a reading above 50 indicating expansion. Additionally, the employment component moved to 56.1 from 53.2, and while new orders dropped slightly, it still remains solidly above 50. The service side of the ledger also continues to show expansion as the ISM Non-Manufacturing Index posted a reading of 56.0.
The job picture got a little murkier with the latest report. Although ADP reported that March private payrolls expanded by 209,000 positions and February was revised higher, the Labour Department said that only 120,000 jobs were added, below expectations and contributing to the pullback in stocks. Positively, the unemployment rate dropped to 8.2 percent, still elevated but well off its high. Leading indicators of job growth such as initial unemployment claims continue to suggest that the March reading may prove to be an outlier and/or a natural pullback after the strong weather-related gains in the first two months.
In fact, the improving job picture appears to be bolstering the consumer, as retail sales numbers have been relatively positive and we’ve seen auto sales continue to rebound after a sharp drop-off.
And we'll be getting more information at the corporate level over the next several weeks as first quarter earnings season heats up. There appears to be more uncertainty heading into this season than we've seen recently, but we have seen analyst forecasts revised higher recently. This reporting season could provide the next near-term catalyst for the markets as some positive surprises and commentary could provide further fuel, while disappointment could move stocks lower. One advantage we may have is that expectations entering the season appear relatively low, with Yardeni reporting that as of April 6 analysts are expecting S&P 500 companies' earnings to only grow 2.4 percent over last year, which would be the slowest rate since the third quarter of 2009, providing the opportunity for upside surprises.
Liz Ann Sonders is senior vice-president and chief investment strategist at Charles Schwab & Co.
The job picture got a little murkier with the latest report. Although ADP reported that March private payrolls expanded by 209,000 positions and February was revised higher, the Labour Department said that only 120,000 jobs were added, below expectations and contributing to the pullback in stocks. Positively, the unemployment rate dropped to 8.2 percent, still elevated but well off its high. Leading indicators of job growth such as initial unemployment claims continue to suggest that the March reading may prove to be an outlier and/or a natural pullback after the strong weather-related gains in the first two months.
In fact, the improving job picture appears to be bolstering the consumer, as retail sales numbers have been relatively positive and we’ve seen auto sales continue to rebound after a sharp drop-off.
And we'll be getting more information at the corporate level over the next several weeks as first quarter earnings season heats up. There appears to be more uncertainty heading into this season than we've seen recently, but we have seen analyst forecasts revised higher recently. This reporting season could provide the next near-term catalyst for the markets as some positive surprises and commentary could provide further fuel, while disappointment could move stocks lower. One advantage we may have is that expectations entering the season appear relatively low, with Yardeni reporting that as of April 6 analysts are expecting S&P 500 companies' earnings to only grow 2.4 percent over last year, which would be the slowest rate since the third quarter of 2009, providing the opportunity for upside surprises.
Liz Ann Sonders is senior vice-president and chief investment strategist at Charles Schwab & Co.
