US companies added a measly 126,000 jobs in March, and the prior two months’ worth of job estimates were revised down by 69,000.
For a while, job creation was the one economic indicator that hadn’t deteriorated significantly since the beginning of the year.
So, what does that mean?
Here’s your Monday Scouting Report:
Some people think that the Fed will have to put off its plans to tighten… For several months, many economists were convinced June would be the month that the Federal Reserve would begin hiking its benchmark interest rate (or fed funds rate) as it tightens monetary policy. But following the March Federal Open Market Committee (FOMC) meeting and in the wake of the deteriorating economic data, many economists are now pushing their rate hike expectations back to September, December, and even next year.
For Goldman Sachs’ David Mericle and Sven Jari Stehn, the issue is more about the signs that inflation is falling short of even the Fed’s own expectations. From their April 3 note: “Our analysis suggests that it is hard to be “reasonably confident” in the inflation outlook unless the data improve on multiple fronts. We therefore do not have much confidence in the inflation outlook and believe that the right policy would be to put hikes on hold for now. But Fed officials have continued to signal that a September hike remains the baseline. Our forecast for when the liftoff will occur — which is distinct from our opinion about when it should occur — remains September, but this is now a close call vs. December.”
- ...But don’t forget about the importance of the markets… While acknowledging the weak jobs report and the deterioration in other economic indicators, Allianz’s Mohamed El-Erian believes that if were only about the economy, the Fed could still arguably raise rates in June. Instead, he notes that we can’t ignore how the Fed sees the financial markets fitting into this picture.
Here’s El-Erian: “…the economy is not the only issue on the central bankers’ balance sheet. Having used the financial asset markets as the main transmission mechanism to pursue its economic objectives, the Fed is worried that any misstep on its part would cause disorderly price movements and thus undermine economic dynamism. Indeed, memories of the May-June 2013 “Taper Tantrum” are still fresh in the minds of some central bankers, as are more recent episodes (albeit short) of market malfunctioning and sudden liquidity stress.”
Indeed, concerns about the sudden disappearance of market liquidity are always hanging out there.
- Markit US Services PMI (Mon): Economists estimate this services index improved to 58.6 in March from 57.1 in February. “While the surveys signal that economic growth will have slowed in the first quarter from an already- modest 2.2% pace seen in the final quarter of last year, the upturn in the surveys in March provides a clear advance indication that stronger economic growth will return in the second quarter,” Markit’s Chris Williamson said.
- ISM Non-Manufacturing Index (Mon): Economists estimate this services index slipped to 56.5 in March from 56.9 in February. Here’s BNP Paribas: “West coast ports are running more smoothly, following disruptions in the beginning of the year, and the harsh winter weather is abating. Downside risks include likely continued disappointment from the oilfield services sector.”
- Job Openings And Labour Turnover Survey (Tues): Economists estimate the JOLTS report will reveal there were 5.003 million jobs openings in February, up marginally from the 4.998 million in January. From Credit Suisse: “Job openings rose slightly in January to 5.0M, keeping the ratio of vacancies to unemployed workers elevated at 0.56. There was a slight decline in this ratio from December, but this was largely due to the temporary increase in unemployment in January and the recent uptrend is likely to resume in February.”
- Consumer Credit (Tues): Economists estimate consumer credit balances increased by $US12.65 billion. Here’s Nomura: “Non-revolving consumer credit growth accelerated last year (likely due to an increase in auto loans). However, revolving credit growth was slow, showing above-trend gains in only a few months. This slow trend continued into 2015, with revolving credit declining in January. Households’ risk appetite remains tenuous, despite improvements in labour markets and income. More solid growth in revolving consumer credit suggests that consumers are more confident about their finances and could provide a boost for spending going forward.”
- FOMC Minutes (Wed): The Fed will release the minutes of its March 17-18 Federal Open Market Committee meeting, which is when it removed “can be patient” from its forward guidance. From Credit Suisse: “…the most interesting aspects of the March 17-18 FOMC meeting minutes probably will have little to do with “patience” and more to do with 1) the effect of the stronger dollar on domestic growth, 2) the likely contours of the upcoming tightening cycle, and 3) the operational readiness of the Fed’s exit strategy tools.”
- Initial Jobless Claims (Thurs): Economists estimate the weekly jobless claims climbed to 282,000 from 268,000 a week ago. “Claims have returned below 300k thus far in March and continue to point to solid improvement in labour market performance,” Nomura economists said.
- Monthly Budget Statement (Fri): Analysts estimate the US ran a budget deficit of $US43 billion in March.
The most important drivers of stock prices are earnings and expectations for earnings growth. However, there are many ways to measure earnings.
For one, there’s earnings based on GAAP, or generally accepted accounting principles, which unfortunately includes any major non-recurring items like the big gain on sale of an asset or losses on a big asset write-down.
To address that, analysts often look to adjusted-earnings, which make adjustments for noise and non-recurring items. This is an effort to get a better sense of the longer-term earnings power of the core operations. Bloomberg offers a number. IBES, which is owned by Thomson Reuters, offers a number. Even S&P makes their own adjustments and offers something called operating EPS.
“There is no single perfect measure,” Deutsche Bank’s David Bianco writes.
It’s something to be mindful of.
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