This looks like another Goldilocks jobs report as payrolls come in at 216K according to the BLS. The unemployment rate dropped to 8.8%. Average hourly earnings are still flat. All in all there are not a lot of surprises here.
The marginal recovery in the labor market is good for the economy, but far from being enough to close the output gap and bring unemployment down to anything resembling full employment. This is still terrible for Main Street, but good for Wall Street. For the markets this figure is pretty much exactly what market participants wanted. A big number would have really spooked investors as tightening fears become real. But this report is weak enough that the Fed should feel comfortable moving ahead with business as usual. So, marginal strength and Fed easiness. It’s the best of both worlds for stocks.
March ISM is also out and the report shows continued robust growth in manufacturing. This has been the one strong driver for the economy and today’s report is no exception. Headline came in at 61.2 which was in-line with expectations, but the real strength is in the underlying data. New orders dropped a bit to 63.3 from 68 and employment fell to 63 from 64.5, however, both are very high historical figures. Prices paid are still worrisome at 85 vs last month’s 82. The margin crunch is on, however, the recovery in manufacturing does continue.
Some commentary from the survey is enlightening:
- “Customer orders have picked up nicely. [This is] likely in anticipation of increasing prices due to commodity costs that will likely happen over next month.” (Food, Beverage & Tobacco Products)
- “New orders continue at a robust pace this month.” (Miscellaneous Manufacturing)
- “What will be the impact to the U.S. supply chain after the devastation caused by the Japan earthquake?” (Chemical Products)
- “The building side of our business is mired with little hope of a rebound anytime soon.” (Fabricated Metal Products)
- “Steel and certain steel products causing concern over price increases and availability.” (Machinery)
All in all market participants should be pretty pleased with today’s data. We dodged a serious bullet in a strong job’s report and what some expected to be a more severe decline in ISM given some of the recent regional reports. One negative is that the mean reversion in the ISM data is likely beginning and if history is any guide that likely means equity market gains will become harder to come by….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.