At points of inflection in the economy the indicators are typically mixed. Again this week’s releases were mixed, but, unlike last week, the balance of the mixture was firm.

Fourth quarter corporate reporting season approached a close with over 72 percent of the companies having reported positive surprises and only 17 percent having reported negative surprises. Financial conditions firmed again this week; Bloomberg’s Financial Conditions index reached a new 2 1/2 year high; corporate credit spreads narrowed for the second week in a row; the sovereign debt crisis in Greece found sources of support within the Euro-zone. Equity markets rallied and government bond markets fell. Oil rose more than $1 to close over $81 on the week.


The encouraging signals of the economic recovery have come from the corporate sector. Economic activity has picked up, but workers have not been rehired. This has resulted in strong corporate profits and high productivity as shown in the releases mentioned below. While economists were impressed by the better-than-expected U.S. employment report, it was not much comfort to the 9.7 percent who remain unemployed, the 470,000 claiming benefits for the first time, or the 4.5 million still receiving those benefits. Former Fed Chairman Volcker and others have indicated that it is too soon to remove the stimulus. The recovery will not be self-sustaining and robust until hiring commences and jobs are created. There have been hopeful signs of improvements in employment and housing, but they have yet to be reflected in substantial job creation.

The Davidson family has decided to make its own test of the recovery in the housing market. Having survived (and enjoyed!) two winters in Maine, we are ready to let go of our home in Riverside, Conn., and listed it for sale this week.

Economic releases

Across the globe, the purchasing managers’ indices remained well into the expansion zone in February. U.S. manufacturing dropped a couple of points to 56.5 while services rose to 53.0. UK’s PMIs were 56.6 and 58.4 for manufacturing and services. France’s were 54.9 and 54.8 and the Euro-zone’s were 54.2 and 51.8, respectively.

In the fourth quarter U.S. nonfarm productivity gained a whopping 6.9 percent while unit labor costs fell -5.9 percent. In January, factory orders increased 1.7 percent, but pending home sales fell -7.6 percent; personal income rose +0.1 percent while spending increased +0.5 percent. Yet inflationary pressures remained under control; the PCE deflator was flat in January, rising just 2.1 percent YOY and, ex-food and -energy, rising just +1.4 percent YOY.

The Bank of England met and, as expected, held rates flat at +0.50 percent and maintained the asset purchase target at 200 billion pounds. The European Central Bank also met and, as expected, held its target rate firm at 1 percent.

The U.S. employment report for February was a bit better than most had hoped given the effect of snow on an already slow jobs recovery in the United States. Little progress in employment was made this year. The four-week average of weekly jobless claims of 470,800 has been flat since year-end. Non-farm payrolls were down -36,000 in February. Manufacturing jobs managed to eek out an increase of just 1,000 jobs.

In other U.S. employment news the unemployment rate remained at 9.7 percent in February. The average hourly earnings gained +0.1 percent and the average weekly hours lost a tick to 33.8.

Sources: Bloomberg LP