US Employment Indicators (Excerpt)

Last December, I wrote: “[M]y working hypothesis is that the fiscal cliff will be averted and there won’t be a recession next year.” I also predicted: “Averting the fiscal cliff could be very stimulative for the economy.” The cliff was averted, but the payroll tax rate was raised back to 6.2% from 4.2%, and marginal tax rates were increased for high-income taxpayers. Evidence is mounting that the economy is performing very well so far this year despite the tax hikes. The jury is out on the impact of the March 1 sequester, though that certainly hasn’t stopped the DJIA from rising to record highs over the past two days.

According to ADP, nonfarm private payroll employment rose solidly last month by 198,000. This series closely tracks the comparable official series compiled by the Bureau of Labor Statistics (BLS). January’s increase was revised upwards by 23,000 to a gain of 215,000. The latest gains were fairly evenly distributed among large companies (57,000), medium companies (65,000), and small companies (77,000). This confirms my view that dodging the fiscal cliff gave the economy enough of a boost to offset the fiscal drag attributable to the tax hikes and the sequester.

Today's Morning Briefing: Modest to Moderate: (1) Averting the cliff was stimulative and bullish. (2) Two shades of beige. (3) Fed’s national survey more positive than district surveys. (4) Latest employment indicators looking good. (5) Big rebound in machinery orders. (6) Good news for Industrials boosts their stock prices. (7) Weak economies weighing on the euro, pound, and yen. (8) Will rising trade-weighted dollar depress S&P 500 revenues and earnings? (More for subscribers.)

Yellen on the Unemployment Rate (Excerpt)

On Monday morning at the National Association for Business Economists, Fed Vice Chair Janet Yellen presented a speech titled, “Challenges Confronting Monetary Policy.” In her opinion, the biggest challenge remains to lower the unemployment rate. She favors maintaining ultra-easy monetary policy for as long as it takes to bring the jobless rate down to 6.5%. And even then she would probably advocate maintaining the federal funds rate near zero, though she might be willing to terminate the Fed's purchasing of securities.

While Yellen’s speeches tend to be more dovish than Bernanke’s, they seem to share most of the same views. Since she joined the Fed she has given 19 speeches: two in 2010, ten in 2011, four in 2012, and three so far this year. Many of the ones since late 2011 boosted stock prices. In her latest speech, she made several extremely important points that are likely to drive monetary policy over the rest of this year and next year:

For starters she thinks that the official unemployment rate is too high and significantly understates the problem. She notes that while 12 million workers are currently counted as unemployed, an additional 8 million are working part time because they can’t find a full time job. She is also discouraged that there are 800,000 discouraged workers who have stopped looking for work. She notes that the official U-6 unemployment rate reflecting all these people is at 14.4%, nearly double the official rate of 7.9%.

In a 2/11 speech, Yellen said that ultra-easy monetary policy might remain in place even if the Fed’s unemployment “threshold” of 6.5% is achieved as long as inflation remains around 2%. I'm sure that in her mind 6.5% is still too high.

Today's Morning Briefing: Fairy Godmother. (1) The bull has a powerful friend. (2) Yellen thinks that even 6.5% is too high. (3) The wealth effect vs. asset bubbles. (4) Yellen wants more risk-taking as long as it is prudent! (5) CNBC Flash: Buffett says NZIRP is bullish for stocks. (6) US economy displays resilience. (7) Purchasing managers surveys upbeat for revenues outlook. (8) Consumers are taking recent hits in stride. (9) Construction upturn giving green light to light truck sales. (10) Joe reviews overweight-rated Financials. (More for subscribers.)

S&P 500 Revenues (Excerpt)

When the current bull was a youngster during 2009, the bears growled that the rebound in earnings back then was all attributable to cost cutting. They were very pessimistic about the outlook for revenues. I was among the optimists. 

So far, so good. S&P 500 revenues per share bottomed during Q1-2009 and are up 30.2% through Q4-2012, and 5.9% y/y. I also track revenues for the S&P 500 Industrial Composite, which excludes Transportation, Financials, and Utilities. On a per-share basis, it is up 42.4% over this same period, and 4.4% y/y. Both measures are at record highs. I am predicting that revenues will increase 5% this year and next year. 

As of the week of 2/21, industry analysts were predicting that S&P 500 revenues will increase 3.1% this year and 5.0% next year. Forward revenues, the time-weighted average of these two forecasts, rose to a new cyclical high. 

Today's Morning Briefing: Happy Anniversary! (1) Jumping the gun. (2) So close, and not so far. (3) Is sentiment too bullish? Short answer: Nope. (4) Bull/Bear Ratio works better at bottoms than tops. (5) Four years ago, skeptics doubted revenues could grow. (6) Must profit margins revert? Yes, but no rush. (7) Forward earnings at record highs yet again for S&P 500/400/600. (8) S&P 500 Blue Angels flying high. (9) Still targeting 1665. (More for subscribers.)

CNBC Appearance

US Purchasing Managers (Excerpt)

US manufacturing activity has been expanding at its fastest pace since June 2011. The M-PMI has jumped 4.0 points the past two months to 54.2 in February, after being range-bound the last half of 2012. During the first two months of 2013, the new orders index soared 8.1 points to a 22-month high of 57.8; the production index was 5 points higher at a 10-month high of 56.7. The inventory index (often volatile) climbed 8.5 points over the two months to 51.5. The employment index took a step back (from 54.0 to 52.6), though remains above December’s 51.9 reading. Sub-indexes show backlog orders soared 7.5 points in February to 55.0; indexes for export orders (53.5) and imports (54.0) climbed 3.0 and 4.0 points during the month.

Today's Morning Briefing: Pagliacci. (1) The clowns. (2) The sequel. (3) Beppe & Silvio. (4) Mario’s pledge isn’t unconditional. (5) Ben wants to take it easy for a long time. (6) Republicans won’t shut the government down. (7) Same old Kabuki? (8) China set for another round of massive urbanization. (9) Are the clowns bullish? (10) Will US economy pass latest stress test? (More for subscribers.)