Thursday, April 2, 2015

Is US Economy Coming Out of Ice Patch? (excerpt)

On March 18, I observed that spring is coming. Just as I predicted, it started two days later on March 20. On the other hand, the latest batch of economic indicators for March suggests that I may have been too optimistic when I wrote: “I agree with Chauncey Gardiner’s prediction: ‘In the spring, there will be growth.'”

I argued that the economy’s weakness during the first two months of the year reflected an ice patch rather than a soft patch. There are still grounds for optimism as the ground thaws. However, the latest data suggest that it could be a cold spring:

(1) Business surveys. Yesterday we learned that the latest survey of manufacturing purchasing managers showed a decline in the M-PMI to 51.5 during March from 52.9 during February. I wasn’t surprised since the overall index is highly correlated with the average of the composite indexes for the six available regional business surveys. This average fell to -0.1 during March, the lowest since April 2013.

The same can be said for the orders and employment components of the national and average regional surveys. The average regional orders index was especially weak in March, falling to -9.6, the lowest since May 2009. The national orders index (51.8) wasn’t as weak, but it was down from February (52.5). The national employment index (50.0) was weaker than suggested by the regional average, which edged higher during March.

It’s getting harder to blame the weather. Of course, other factors are working to slow the economy. The strong dollar’s negative impact is visible in the M-PMI’s new exports component, which dropped to 47.5 in March, the lowest reading since November 2012. The plunge in oil prices may be depressing energy-related new orders as well as production.

(2) Employment. Yesterday, we also learned that the ADP measure of private payroll employment rose 189,000, the weakest since January 2014. It may be that energy-related employment is taking a hit from the drop in oil prices. The four-week average of jobless claims in North Dakota, Ohio, Pennsylvania, and Texas has spiked up recently from 41,210 near the end of last year to 54,408 in mid-March.

Today's Morning Briefing: Ice & Soft Patches. (1) Full steam ahead on ECB’s QE. (2) ECB facing self-inflicted bond shortage. (3) Negative yields at the short end of the yield curve. (4) Questioning the necessity of ECB’s QE. (5) Taper talk already. (6) Central bankers co-opt the bond market that was once ruled by Bond Vigilantes. (7) Will there be growth in the spring? (8) March business surveys mostly downbeat. (9) Energy-related job losses weighing on ADP payroll gains. (10) Personal income strong, while spending is weak. (11) March data will be key, with auto sales auguring well for spring spending. (12) Focus on market-weight-rated S&P 500 auto-related industries. (More for subscribers.)

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