Easter egg hunt: Thursday data offers good/bad surprises

EASTER EGG HUNT: THURSDAY DATA OFFERS GOOD/BAD SURPRISES

A full menu of data was offered to market participants on Thursday, with a wide variety of offerings for varied tastes.

Starting with news from the Jurassic period, the Commerce Department issued its third and final take on fourth-quarter GDP (USGDPF=ECI), unexpectedly hiking it by 20 basis points to 3.4% at a quarterly annualized rate.

"Thursday's GDP print affirms the strength of the economy in the final months of 2023 and helps to justify the stock market's move higher throughout 2023, since the market typically moves ahead of the economy," writes Jeremy Straub, CEO of Coastal Wealth.

Spending by the intrepid American consumer, who is responsible for about 70% of the U.S. economy, was also revised higher, to 3.3% from 3.0%, and contributed 2.2 percentage points to the headline number.

Drilling down into the report, consumer spending on services was bumped up to 3.4% growth from 2.8%, and business investment was marked up to 3.7% from 2.4%, attributable to a whopping 10.9% increase in structures.

Government spending, particularly on the State and Local levels, was also given a significant upward revision.

Headline quarterly PCE price growth was unrevised at 1.8%, while core PCE landed a shade cooler at an even 2.0%, but fresher, monthly PCE price data is on tap for tomorrow.

Next, the number of U.S. workers who joined the unemployment line last week (USJOB=ECI) inched down by 0.9% to 210,000, defying analyst expectations for a 0.9% move in the other direction.

The broader trend of initial claims, as expressed by the four-week moving average, is moving sideways at the low end of a range typically associated with healthy labor market churn.

But as reflected in recent surveys (NFIB, PMI), scarcity of qualified labor remains a challenge, so employers are likely hesitant to start handing out pink slips willy-nilly.

It speaks to continued tightness in the labor market, which is viewed by the Fed as a barrier to sustainably cooler inflation.

But signs of a weaker jobs picture are lurking on the horizon.

"Three key leading indicators—Challenger layoff announcements, WARN notices, and Google searches for “layoffs”—point to an increase in claims ahead," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The start of a rising trend in claims, therefore, should be visible by late May, strengthening the case for the FOMC to commence the rate-cutting cycle at its June meeting."

Meanwhile, ongoing claims (USJOBN=ECI), reported on a one-week delay, bumped 1.3% higher to 1.819 million, the highest level since January.

This could be a sign that it's taking recently canned workers longer to find a replacement gig, a theory supported by February's uptick in average unemployment duration, to 20.6 weeks from 19.5 weeks.

Pivoting to the housing market, signed contracts for the sale of pre-owned homes (USNAR=ECI) rebounded largely as expected last month, according to the National Association of Realtors (NAR).

Pending home sales - which tend to turn into actual sales a month or two down the road - rose by 1.6%, a hair stronger than the 1.5% consensus.

This, however, comes on the heels of a 4.7% contraction in January, a month in which frigid temperatures hot mortgage rates kept would-be buyers at bay.

Even so, as shown in the graphic below, NAR's pending home sales index continues to wallow close to the nadir of the pandemic shock of April 2020.

Contracting midwest factory activity, as expressed by MNI Indicators' Chicago purchasing managers' index (PMI) (USCPMI=ECI) has surprised to the downside by accelerating this month to its most dismal print since May of last year.

The index shed 3.6 points to 41.4 - dipping below the level of 43 often association with recession.

A PMI number south of 50 signifies a monthly contraction.

On Monday, analysts expect the Institute for Supply Management's (ISM) more comprehensive national PMI to show an improved - though still diminishing - reading of 48.

Finally, the University of Michigan (UMich) offered its final take on March consumer sentiment (USUMSF=ECI), which came in 2.9 points brighter than originally stated, landing at 79.4.

Current conditions and near-term expectations improved by 3.1 points and 2.8 points, respectively.

One-year inflation expectations cooled to 2.9% and the five-year measure game in at 2.8%, both within one percentage point of the Fed's 2% goal.

(Stephen Culp)

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