There’s little doubt that much of last week’s rally was fueled favorable economic data that helped boost investor confidence in a big way.
So if you haven’t gotten an opportunity to review the latest economic news, you may want to catch up before you start your new week. I believe that several key trends are emerging in terms of job creation and the private sector, so I’ve broken down the highlights below:
The Jobs Market
Last week, jobless claims declined 7,000 to a seasonally adjusted 340,000. Economists had expected the measure to rise to 355,000. Better yet, the four-week moving average also fell by 7,000 to 348,750. This is big news because the four-week moving average is now at the lowest level in five years (March 2008).
In February 237,000 jobs were created in the U.S. This was significantly better than economists’ consensus estimate of 160,000 and also represented the largest monthly gain since last November. Meanwhile the unemployment rate declined to 7.7%, the lowest rate since December 2008. Economists had expected the rate to remain unchanged at 7.9%. The only negative news associated with the payroll report was that the Labor Department revised down its payroll reports for January and December by 15,000 jobs.
So overall, the job market definitely appears to be on the road to recovery. And this trend should continue, as the Fed will keep pumping money into the U.S. economy until unemployment hits its target of 6.5%.
The Private Sector
In January, orders for factory goods dropped 2%—representing the largest slump in five months. Even so, this was less severe than the 2.2% decline forecast by economists. Breaking it down, orders for military capital goods plunged 70%. So when you exclude aircraft and military equipment, capital goods orders actually surged 7.2%—the biggest gain since September 2004.
This is important because this measure is an indicator of business investment. This follows the trend set by last week’s durable goods results—while headline durable goods fell 5.2%, excluding transportation orders, orders for durable goods actually rose the most in over a year. So while the defense cuts are weighing on orders, the slack is being picked up by other pockets of private industry.
In January, wholesale inventories advanced 1.2%, the largest jump in more than a year. This also surpassed economists’ forecasts of a 0.2% gain in inventories. January’s gain was caused by a rebound in consumer spending. Breaking it down, drug inventories surged 62% while professional equipment, groceries and petroleum stocks also rose. Meanwhile, the December report was revised to reflect a 0.1% gain, up from the previous reading of a 0.1% decline. This is great news, but considering that wholesalers account for just a quarter of business inventories, I’ll wait on next week’s more comprehensive report.
In January, the U.S. trade deficit expanded by $6.3 billion to $44.4 billion; this is after it declined 10.1% in December. This represented the largest surge in the deficit in nearly a year and was worse than economists’ consensus expectation of a $42.4 billion trade gap. Exports dropped 1.2% to $184.5 billion as sales to Europe, China, Japan and Brazil declined.
Meanwhile, total imports grew 1.8% on a 12.3% surge in petroleum imports. This was really the only lackluster economic news of the week. And because the trade deficit impacts economists’ first-quarter GDP estimates, these disappointing results will likely prompt economists to err on side of caution regarding overall GDP growth.
The U.S. Consumer
In January, consumer credit rose by $16.2 billion. This increase was above the $15 billion rise we saw in December; economists had expected another $15 billion increase in January. Again, non-revolving debt led the rise, with a $16 billion jump in student loans, auto loans and personal loans. Meanwhile, credit card ticked up just $106 million. It’s clear that the low interest rate environment is encouraging more borrowing, but I’ll admit that I’d like to see stronger results in terms of consumer spending.