It was a light week for economic data but the news was generally positive once again. Week after week, month after month the economic data has continued to surprise the naysayers. I still have serious doubts about how this recovery has been built but there can be little doubt at this point that the recovery is fairly robust. It is primarily a product of monetary policy and that worries me since that is how the last two recoveries were also built and I am getting too old to deal with another bubble. The Fed printed their way out of the 2001 recession and the result was massive malinvestment in housing. They’re doing it again and one wonders where the malinvestment will manifest itself this time. Ah well, I guess malinvestment is better than nothing at this point. Someday we’ll actually address our problems but it doesn’t appear it will be this recession.
The light data week started with the Goldman and Redbook retail readings on Tuesday which showed big rebounds from the snowed in numbers of the last few weeks. Goldman’s same store sales metric jumped 2.9% week over week. By the way, I spent the week in Chicago visiting my daughter (who is attending the School of the Art Institute of Chicago) and when temperatures moderated the city fairly jumped to life. Tuesday was a beautiful spring-like day with afternoon temperatures around 60 with sunny skies. I went out for a jog and passed 4 parks packed with parents and kids. I think the harsh winter has people itching to get out of the house and my guess is that they’ll be spending when they do. It has never paid to bet against the US consumer.
Mortgage purchase applications rose for the second straight week (+5.7%). This might be a precursor to a surge in sales before the expiration of the tax credits in April. It could also have something to do with the weather warming up - I don’t want to read too much into these numbers.
Wholesale trade numbers showed rapidly improving sales (+1.3%) and falling inventories for durable goods. A lot of people pooh poohed the 4th quarter GDP report because much of the gain was a result of inventories falling more slowly. It has been suggested that GDP gains built on inventory gains are temporary and that may be true but it should be noted that the inventory building hasn’t even started yet. Indeed the inventory to sales ratio is just now at the level I suggested months ago would be the trigger for a rise in production. So if inventory rebuilding is temporary so be it, but it is going to have a positive effect on GDP for at least another quarter.
The disappointments for the week were released on Thursday. The trade deficit shrank in January with both exports and imports falling. Neither was due to significant prices changes but imports fell faster than exports producing a slight drop in the deficit. These numbers were for January though and activity likely rebounded in February. China reported big gains in exports and imports in February. And it shouldn’t be forgotten that exports are up over 23% year over year. The other disappointing release of the week was the jobless claims report which showed only a small drop in claims. This is the one report that continues to worry me week to week. There have been some positive trends in the jobs reports – temp jobs and manufacturing – but we are not likely to get significant growth in jobs until claims fall under 400,000 on a weekly basis and that is still a ways away (462k).
Retail sales for February were up 0.3% and up 0.8% ex autos. And excluding both autos and gasoline, sales were up 0.9%. Sales are up 3.9% year over year and this was a very solid report. As mentioned above, it has never paid to bet against the US consumer; sales continue to beat expectations.
The last report of the week was the U of Michigan mid month consumer sentiment report which showed a small drop from February. I don’t usually pay much attention to these reports, but the market has reacted negatively to the last two reports so I feel I should comment. These reports are interesting but are, at best, coincident indicators. They don’t lead the stock market or the economy and as such don’t provide much guidance for investors. Sentiment will improve after conditions have already improved.
The economic recovery continues to surprise most analysts and investors and it is gaining strength. If history is any guide at all, it is also likely just getting underway.