Broad and Strong Trends Emerge as Quarter Ends

Over the past week data confirmed what we’ve been seeing recently: The U.S. economy appears to have rebounded in March from lackluster growth in February. Whether it was a case of extreme cold weather blanketing a majority of the country last month or a seasonal anomaly augmented by the timing of two stimulus payments for qualified individuals,  a sharp contrast between the two months continues to be seen in almost every figure that’s been reported.

Elsewhere, on a weekly basis, the 10-year U.S. Treasury yield declined for the first time in over two months. Even though there are signs of inflationary pressure in the economic data as well, we maintain the jump in long-term interest rates since the beginning of the year is a sign of a healthy economic recovery. This trend should continue into the spring, as COVID-19 vaccine distribution expands and allows for more areas of the country to reopen. 

WALL STREET WRAP

Preliminary PMI Data Show Multi-Year Strength: Last Wednesday, preliminary March Purchasing Managers’ Index (PMI) reports from Market IHS showed continued economic improvement in the U.S. and eurozone. At home, the Services sector PMI increased to 60, which was the highest reading since 2014. Manufacturing PMI came in at 59 for March and marked the second highest level seen in 14 years. New manufacturing orders also reached a seven-year high. As it pertains to signs of potential future inflation, prices charged and input prices for manufacturers this month were the highest on record.

In Europe, the Manufacturing PMI jumped to a record of 62.4 for March, and record new orders suggest continued momentum in that area. Services PMI is still lagging the U.S. at 48.8 but notably rose above the key 50 level in Germany. The delay in a consumer recovery in the eurozone is due in part to stricter COVID-19 lockdowns, compounded by a slower vaccine rollout. 

Regional Manufacturers Hit More Records in March: Confirming what we saw earlier in the month out of New York and Philadelphia, there were more robust regional manufacturing reports last week. The Kansas City Federal Reserve said that its composite index increased to 26 in March, which represented the highest reading in the survey dating back to 2001. Earlier in the week, the Richmond Fed also posted solid manufacturing data.

Durable Goods and Home Sales Decline in February: Confirming that it has been a tale of two months between March and February, declines in durable goods orders and home sales activity were announced last week. The Census Bureau reported on Wednesday that durable goods orders fell 1.1 percent in February, or 0.9 percent excluding transportation. This marked the first decline of the headline figure in 10 months, although the January reading was revised up to 3.5 percent growth.

Earlier in the week, the Department of Commerce said that new home sales declined 18.2 percent in February. That was the steepest drop in eight years, as all regions of the U.S. posted lower activity. On Monday, the National Association of Realtors also announced that sales of existing homes fell 6.6 percent last month. Several economic reports from February have now showed monthly declines from robust January figures. This appears to have been magnified in consumer-related data, as a snap of cold weather impacted most of the country in February.  

Key Consumer Price Gauge Shows Moderate Growth: The Bureau of Economic Analysis said on Friday that the PCE price index increased 1.6 percent in February, 1.4 percent excluding food and energy. Both readings were well below the 2 percent level that the Federal Reserve uses as a key consumer inflation threshold. We would not be surprised to see this reading increase over the course of the year, as several business surveys are showing that producers are paying more for commodity inputs and attempting to pass along some of the increase to customers. Even if there are signs of rising inflationary pressure, we don’t expect the Federal Reserve to change its accommodative stance with short-term interest rates any time soon. Chair Jerome Powell has repeatedly stated higher prices should prove to be temporary phenomenon and that the Fed’s primary focus these days is to support a full recovery of the U.S. job market.

Jobless Claims: To that end, the Department of Labor reported 684,000 initial weekly jobless claims on Thursday, which was the lowest figure since COVID-19 business and travel restrictions were enacted. Continuing claims are now under 4 million, although 9 million jobs have still not been recovered since the beginning of the pandemic and another 5 million workers have dropped out of the labor force.

THE WEEK AHEAD

ISM Manufacturing on Deck: The Institute of Supply Management will release its March manufacturing data on Thursday, which could serve to validate the strong figures we saw in the PMI data last week.

No Holiday for the Jobs Report: U.S. financial markets will be closed on Friday for a holiday, but we’ll still receive the March employment data. Consensus estimates call for the addition of 643,000 non-farm payrolls in the month, building upon the momentum of the 379,000 jobs added in February. 

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