Economy looking up
Economics in a nutshell: Consumer optimism about the future coupled with an improving jobs picture point to an improving economy.
INDICATOR: April Consumer Confidence and Small Business Jobs
KEY DATA: Confidence: -1.6 points; Expectations: +0.1 point; Current Conditions: -4.2 points/Small Business Jobs Index: +0.1%
IN A NUTSHELL: "Consumer optimism about the future coupled with an improving jobs picture point to an improving economy."
WHAT IT MEANS: Consumers are quite fickle and the latest Conference Board Consumer Confidence Survey seems to point to that fact. While households seemed to lose faith in how things were currently going, they kept the faith when it came to their expectations of future economic activity. Indeed, people thought that jobs would become more plentiful even as they indicated they were harder to get in April. And maybe most importantly, a growing share expects their incomes to increase over the next six month. More income generally translates into more spending. That optimism about the labor market was bolstered by a new report, the Paychex/IHS Small Business Index. This looks at the hiring activity of the smaller businesses and in that way, separates itself from the ADP report. Both ADP and Paychex are employment services companies so we appear to have dueling, but not equal, payroll indices. The more the merrier and I welcome Paychex to the mix. In any event, the rise in the index seems to argue for improved jobs reports since small businesses generate a large number of the new positions. The government data has tended lately to be revised upward as more mid-sized and smaller businesses report and the Paychex numbers support the view that job gains are accelerating. The consensus for Friday's report is about 220,000 but with unemployment claims low, I think it could be well north of that number. I also expect the unemployment rate to decline.
In a separate report on housing prices, the S&P/Case-Shiller index was largely flat in February and the year-over-year price increase slowed. We are still seeing double-digit increases in most of the twenty cities in the index but that was largely due to past gains. Currently, prices are essentially going nowhere.
MARKETS AND FED POLICY IMPLICATIONS: The drop in confidence was a surprise, though the March number had been the highest in six years. I really don't know how to explain it as there weren't a lot of negative numbers and I am not sure a whole lot of people are concerned that Russia might invade the Ukraine. I'll just chalk it up to the ebbs and flows of the numbers in an environment where economic conditions are getting better slowly. With the Fed starting its two-day meeting today and with the payroll numbers coming out on Friday, I doubt investors will worry too much about a small drop in confidence in one indicator. Earnings are more important right now. As for the Fed, today's numbers will not change the discussion or the outcome of the FOMC meeting. Tomorrow's statement will likely indicate that tapering conditions unabated, the economy slowed in the first quarter, most likely because of weather and the Fed will continue to support stronger growth by keeping rates low. In other words, it will probably be a yawner.