The Economy: More Signs of Spring?

by BW Staff

Just in time for May, some additional "green shoots" appear to be poking their way through the parched fields of the U.S. economy, as evidenced by a batch of Apr. 30 data releases.

The reports showed that initial jobless claims fell 14,000 in the week ended Apr. 25, though continuing claims rose 133,000 to a record 6,271,000; March personal income fell 0.3%, while consumption fell 0.2%; the first-quarter employment cost index rose 0.3%; and the April Chicago purchasing managers' index jumped to 41.1 from 31.4 in March.

BusinessWeek compiled the thoughts of Wall Street economists and strategists on the latest data—and other topics—on Apr. 30:

Action Economics

Today's U.S. reports reinforced the view that the worst of the economic contraction is behind us, though gross domestic product will continue to trend lower through the second quarter. The personal income figures largely tracked our assumptions following yesterday's report of a solid first-quarter real consumption gain with weakness in tax and nontax payments that is allowing a solid bounce in first-quarter disposable income. Initial claims are finally moderating from what may well prove to be a cyclical peak in March. The Chicago PMI figures revealed an April gain similar to that seen with the Empire State and Philly Fed reports for the month.

Finally, the employment cost index report revealed an even more rapid cyclical pullback in wage costs in the first quarter than we had expected, following moderating wage costs in prior quarters, which will help to support the labor market once economic expansion re-emerges later this year.

Tony Crescenzi, Miller Tabak

Distortions aside, jobless claims show signs of moving toward a sideways pattern. They may have peaked, albeit at levels that suggest large declines in payrolls, say, around 500,000 to 600,000 per month. The steadying signals a slowing in the pace of decline in the economy. This is possible because business inventories have been falling rapidly of late, and production levels have in many industries fallen sufficiently relative to demand, reducing the need for further cutbacks and hence the need to shed workers.

Continuing claims, which measure the total number of people continuing to receive jobless benefits, increased 133,000 in the week ended Apr. 18 (these data are released with a one-day lag) to a record high of 6.271 million. A year ago the figure stood at 2.9 million. High levels of continuing claims indicate that past filers for jobless benefits are having difficulty finding employment.

Beth Ann Bovino, Standard & Poor's

The BLS employment cost index rose a meager 0.3% in the first quarter and is up only 2.1% from the year before. Both increases are the lowest since the series began to be collected on the current basis on 2000. The market consensus was for a 0.5% quarterly gain. Benefits rose 0.5%, while wages were up only 0.3%. Private compensation costs were up only 0.2%, but state and local wages proved recession-resistant, climbing 0.8%.

The data show no sign of inflation, and in fact a bit of deflation risk in the private sector. The Fed clearly has room to keep interest rates low, given the wage inflation report.

Edward Yardeni, Yardeni Research

China is shovel ready! I've been arguing that China, rather than the U.S., is likely to lead the global economy out of recession. Caterpillar, in its first-quarter earnings report yesterday said China, with an economy one-third the size of the U.S., is allocating more than three times as much for infrastructure, and "initial results from this package look promising." Caterpillar expects some benefit this year from China's $585 billion stimulus package. United Technologies, Eaton, and DuPont all said they are starting to see results from China's plan.

Yesterday [Apr. 29], in an interview with Erin Burnett on CBNC, Commerce Minister Chen Deming said China has been issuing coupons to its citizens to subsidize their purchases of washers and dryers. These coupons could soon include other appliances as well, including televisions and radios. Also, instead of allowing only rural residents to take part, China is considering opening up the program to city dwellers as well. Chinese leaders have adopted a plan aimed at turning the country into one of the leading producers of hybrid and all-electric vehicles within three years and making it the world leader in electric cars and buses after that.

Richard Dickson, Tracy Knudsen, Lowry's Reports

Yesterday was a strong advance [for the stock market] in numerous respects. Volume expanded, buying was intense and widespread, and our measures of the trend of supply and demand contracted and expanded by respectable amounts. However, more than one session of strength is probably required to declare a new leg higher in the intermediate term uptrend is under way, particularly when both the DJIA and S&P 500 have not moved above their near term resistance levels by a decisive margin.

A follow-through rally that also occurs on increasing volume and a dynamic expansion in demand and contraction in supply would bode well for the prospects of a confirmed breakout from the current sideways trading range and the potential for further gains.

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