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The economy is better than anyone in Washington predicted

by Fortem Financial April 5, 2021

The next several months are likely to test the resolve of the Federal Reserve to maintain its “all in” support. U.S. policymakers continue to target employment. There’s still some labor market slack, but the U.S. economy is picking up quickly now. U.S. mobility measures have already been increasing (ahead of herd immunity). This trajectory remains consistent with timely industry data (eg, TSA travel statistics, restaurant reservations).

The Conference Board measure of U.S. consumer confidence rose to 109.7 in March, with increases in both the present situation & expectations components.

U.S. home prices have also been rising substantially, helped by low rates. The Case-Shiller index was up +11.2% y/y in Jan. Strong gains in home prices indicate the February weakness in some housing data (eg, existing & new home sales) was weather-related noise & potential backlogs, so we remain positive looking forward.

U.S. payroll employment rose strongly in March, increasing 916,000 m/m with upward revisions of +156,000 to prior months. The unemployment rate declined to 6.0% and the labor force participation rate rose +0.1% point to 61.5%. The U-6 underemployment rate declined to 10.7%.

Vaccine(s) + stimulus continue to matter. The U.S. mfg ISM index was 64.7 in March.

Average pay has been reflecting a mix shift as lower-paying (in person) positions have been cut in the past year. This is starting to normalize, with average hourly earnings down -0.1% m/m in March (up 4.2% y/y).

Fiscal stimulus checks have been disbursed in the U.S. (which, on top of strong job gains, should create a March retail sales surge).

The Fed is viewing underlying inflation dynamics as 1) slow moving, and 2) global in nature. Market participants are still trying to get comfortable with this approach. WTI oil was $61 last week and the 10-year Treasury was 1.72%.

Bottom line: we know February economic data was choppy (weather-related disruptions & supply-chain concerns). But as we begin 2Q, we have a large U.S. fiscal stimulus at the same time we see U.S. re-openings continuing to take place.

As we’ve written before, the “square-root” economic recovery looks to be turning into a delayed “V” that we saw start back in May of 2020. This should be accompanied by an upturn in inflation in 2021 (base effects y/y + bottlenecks), but policymakers continue to be focused elsewhere (ie, unemployment & underemployment) and are willing to let the economy run hot.
Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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