INDICATOR: February Trade Deficit, March Layoffs and Weekly Jobless Claims
KEY DATA: Deficit: -$35.4 billion ($7.2 billion narrower)/ Layoffs: down 14,000/ Claims: down 20,000
IN A NUTSHELL: "The job market remains quite strong, vehicle sales are rebounding and with the trade deficit not as bad as expected, first quarter growth could be a pleasant surprise."
WHAT IT MEANS: It's sunny, the temperature is rising and the economic data are looking a lot better. It will be a while before we know the impact of the weather on growth, but we are getting data that implies the winter slowdown may be ending. Yesterday's reports on vehicle sales indicated that people have hardly stopped buying, as the January and February numbers indicated. Instead, once the weather began to change, they started kicking the tires on vehicles they could actually see. March vehicle sales were at a roughly 17.1 million annualized pace, a sharp increase from the 16.2 rate recorded in February. Consumers are spending their money, when they can actually get to where they want to spend their money.
As for the labor market, we received two positive bits of news. First, jobless claims fell sharply and we are once again near record low levels when adjusting for the size of the labor force. The number of recipients fell to its lowest level in over fourteen years. Also, Challenger, Gray and Christmas reported that layoffs notices fell sharply in March. There is really only one weak spot: The energy sector. Roughly one-third of the layoff notices have come from energy-related firms and the report notes that "Without these oil related cuts, we could have been looking one of lowest quarters for job cutting since the mid-90s". In other words, the non-energy portion of the economy is quite strong.
Finally, there was a sharp narrowing in the trade deficit. While this is great news, it came as both imports and exports fell. The declines were not just in energy. On the import side, every major component was down, while only consumer goods exports posted a positive number. The trade data are a puzzle right now as the West Coast dock strike and settlement have totally messed up trade flows. It is likely that both exports and imports will rise solidly in March and even April as the shipping backlog is worked through. How that plays out on the trade deficit is anyone's guess. It will take months before we have a good handle on what is happening with the trade deficit.
MARKETS AND FED POLICY IMPLICATIONS: Today's labor market data hold out hope that tomorrow's job report will be decent. Consensus is for about 245,000 new jobs created and the unemployment rate remaining stable at 5.5%. I am on board with the consensus this month. If that is indeed what we see, then the arguments that the economy slowed for fundamental rather than weather-related reasons will disappear. But once again, watch not only the job numbers but the wage data as well. If they surprise on the upside, those that believe the Fed is on hold for a long time could start scurrying for the hills.