Some recent data released shows the US economy continues to improve….
First:
Companies boosted their orders for capital goods such as machinery and computers in February, in an encouraging sign that U.S. business is confident enough to support the economic recovery.
A key barometer of business investment—orders for nondefense capital goods, excluding aircraft—rose 1.1% last month, erasing part of a sharp drop in January, the Commerce Department said Wednesday.
Overall orders for durable goods—long-lasting items ranging from semiconductor chips to semi-trailer trucks—rose 0.5% to a seasonally adjusted $178.12 billion.
The uptick in capital-goods orders added to economists’ hopes that rising business spending can help lead the recovery, compensating for cautious consumers and a moribund housing market.
So far, though, the pace of the business-sector expansion doesn’t appear to be fast enough to drive a sharp economic rebound.
“The business sector is batting doubles, but it’s not hitting it out of the park,” said Zach Pandl, economist at Nomura Securities in New York.
The past two months’ data suggest business investment is on track to grow at an annualized, inflation-adjusted rate of about 5.6% in the first quarter of 2010, according to forecasting firm Macroeconomic Advisers, less than a third the blistering pace of the last quarter of 2009.
Other indicators suggest growing optimism among businesses. In a survey of 620 U.S. firms conducted last month by Duke University and CFO Magazine, companies said that they expected capital spending to grow by 8.9% over the next 12 months. That’s up from 1.5% in the previous survey, conducted in December.
“There’s a very conservative approach to capital spending, but capital spending is occurring where it creates an advantage,” said Daryl Dulaney, chief executive of Siemens Industry Inc., which makes products ranging from engineering software to high-speed rail equipment.
Rising business investment can often presage an increase in hiring—something many economists expect to see when the Labor Department reports on March employment early next month.
This morning:
The number of Americans claiming unemployment benefits fell to its lowest level since December 2008 last week as accelerating economic output helped slow the pace of job cuts.
Continuing jobless claims fell by 54,000 to 4.65m, labour department figures showed on Thursday. That was better than economists expected and offered hope that the labour market could be stabilising.
Meanwhile, new claims for jobless benefits also fell, declining by 14,000 to 442,000. It was the smallest total in six weeks and brought the less volatile four-week average of initial claims down by 11,000 to 453,750.
“The trend in jobless claims is encouraging for the future direction of the labour market,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics. “However, the level of claims is still too high to signal the emergence of sustained job creation.”
Many states are offering extended jobless benefits and last week the US Senate passed an $18bn jobs bill that offers tax breaks to companies hiring unemployed workers. Companies that hire workers who have been unemployed for at least 60 days will be exempt from paying a 6.2 per cent social security payroll tax until December and if they keep new hires for more than a year they receive a $1,000 tax credit.
Last week, New York, Illinois and North Carolina recorded the biggest drops in jobless claims, while California, Michigan and Iowa continued to see the most filings.
So does this mean are in the clear? No, not by a long shot. It does mean the much feared “double dip recession” while still a possibility, becomes less of one as each month goes by. The US consumer is deleveraging, disposable income is rising, businesses have far healthier balance sheets and the rise in unemployment seems to at least halted.
Housing still sucks but at least it is not crashing anymore and it is going to be sluggish for years. While,that will not help growth, even simple stability there will be a huge plus.
Everything seems to be pointing to selective spending both on the part of business and the consumer. This is very healthy as it means the lessons of the past two years have not be completely forgotten already. While this may frustrate those wanting a faster recovery, it is by far the healthier way to go about it.
Consumer and business confidence will grow with more conviction if we slowly rise rather than choppy growth than offers lurches in either direction.
What does this mean for the market? Hell if I know. I do know real bargains are become much harder to find which tells me valuations are becoming more in line with current expectations. As long as the next earnings seasons matches those expectations and forward guidance is not down, we could say we are somewhat fairly valued (of course there are pockets of both over and under in there, I am talking in general).
Remember, the 2009 earnings bar is a pretty low one to step over so when we are looking at earnings, lets not get caught up in YOY #’s but look at them in terms of the current valuation. EPS in current Q can grow from $.01 to $.02 (100%) but if the co. earned $.10 in same Q 2008 and sports a 54 PE, not much to cheer about.
Caution is the word….