Attention U.S. shoppers: Please help the economy
The thing about mixed signals is, they tend to produce mixed reactions. That goes for stock markets, too, especially now when even central bankers have decided to throw forward guidance out the window and vowed to respond to seemingly ever-changing indicators. Investors who are looking at long-term trends might be frustrated by this, but they still have to pay attention.
A case in point is what happened in U.S. markets on Monday. Investors didn’t get a chance to respond to poor U.S. jobs data released late last week, owing to the Good Friday holiday, but before markets opened on Monday, it looked like a bad session coming up. The markets opened down, as job growth for March came in well below est i mates, but then New York Reserve Chair William Dudley released comments suggesting the weakish jobs numbers might put the U.S. Federal Reserve in a more dovish stance, perhaps pushing the long-awaited interest rate hike to the fall or even later. The S&P 500, which had fallen in early trading, rebounded.
Now, this wasn’t a huge move. But it’s indicative of the peripatetic nature of markets and their readings on data these days. And it’s also a lesson for the rest of us, to not read too much into data as it appears.
For Canadian investors, filtering out the noise on U.S. numbers might be especially important. Not to put too fine a point on it, but if anyone is going to get the world out of the doldrums, it’s the largest economy on Earth. That goes for Canada, too. A strong U.S. economy is, in general, good for us, as our companies sell a lot of stuff to Americans. The corresponding stronger greenback that comes from a stronger U.S. economy is also, in general, good for us, as it makes our manufacturing and export companies more competitive. So while we’re battling with our own flagging economy and so-so stock market performance, recovery in the States is a bright spot on the horizon. And the recent mixed signals from south of the border shouldn’t darken that picture for Canadian investors.
Yes, at 126,000, job growth for March was just the latest in a string of disappointing U.S. economic indicators — retail purchases have been soft this year, manufacturing growth has slowed, and the housing market is limp. All that might look all bad at first glance, but dig deeper and there are glimmers of hope down there.
Manufacturing growth might be fading, but it’s still positive. (The ISM’s manufacturing index for March was 51.5; an ISM above 50 indicates manufacturing is growing.) As well, there’s little doubt that the severe and prolonged winter kept Americans out of stores, so retail sales seem poised to heat up right along with temperatures. And behind the slow job creation numbers, it might have been easy to miss the 2.1% increase in average hourly wages, which beat expectations. U.S. wage growth has been the spanner in the works of the economic rebound, and while it’s probably too soon to tell if the robust March numbers indicate a longer-term trend, at least it suggests that consumers will have a little more in their pockets. Lower gasoline prices, meanwhile, are like a tax cut, and should encourage lower-income earners in particular to spend more.
Of course, the U.S. consumer — who accounts for about two-thirds of the American economy — has so far proven maddeningly reluctant to spend. Despite falling unemployment, cheap money and cheap gasoline, Americans have been saving rather than shopping. (The U.S. savings rate rose to 5.6% in February, the highest mark since December 2012.) But consumer confidence is high, and as the weather warms and if wage growth gets locked in, we can expect more Americans to get out to the mall.
No doubt, thanks to the data-dependent world we live in, there will be potholes in the road. With earnings from Alcoa on Wednesday, S&P 500 earnings season begins, and most estimates are that corporate profits will disappoint, thanks to lower oil prices and the effect of the strong greenback on the revenue of global companies. But investors will also be looking closely at what U.S. consumer companies such as Walmart and Target are saying about the rest of the year.
Make no mistake: the U.S. economic recovery has been slow, painful and uncertain. But there is reason to see in the mixed bag of economic data some signs that American consumers are finally realizing they have money to spend and a world to save. Investors should hope so, anyway.
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The U.S. consumer has been reluctant to spend