EMPLOYMENT
Not as bad as it seems
Although the calendar says May, economists continue to look backward. All in all, they don’t like what has transpired since winter drew its last icy breaths.
Beginning in March, economic activity in many sectors, including manufacturing, seemed to hit a wall, as expansion slowed to what some have described as the weakest pace since the last recession.
The most disappointing showing during March was by the job market, as payrolls grew by a measly 110,000 positions, only about half what economists were expecting.
Although joblessness slipped two notches, to 5.2 percent, that was acribed to fewer people looking for work.
A fresh examination of the labor situation occurs Friday, with the employment report for April. Economist Brian Wesbury is looking for it to show joblessness holding steady while payrolls expand by a solid 190,000 positions.
“People are more negative about the economy than the situation would justify,” said Wesbury, of Claymore Advisors in Lisle.
He says that corporations are, indeed, slow to hire, but that is because workers are becoming ever more productive.
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“The jobless figures don’t fully reflect what people are able to accomplish using cell phones, e-mail and other technology,” he said. “Companies are getting additional output from the same staffs.”
Although hourly wages are growing slowly, Wesbury said, recent tax payments from individuals have been running 8.5 percent ahead of last year’s pace.
“That level of income growth hardly suggests that American consumers are in bad shape,” he said.
FEDERAL RESERVE
Stagnation suspicions
As members of the Federal Reserve gather Tuesday, they are faced with growing warnings about stagflation, in which the economy nearly stalls while prices rise.
Recent inflation numbers have percolated higher, even as the economy’s soft patch stirs warnings about stagnation.
There is not much doubt that central bankers at their meeting will notch interest rates higher by a quarter of a percentage point for the eighth time since the end of June, pushing the short-term barometer to a flat 3 percent.
Economists at Wells Fargo & Co. in Minneapolis believe members of the Fed will continue their “measured” pace of rate increases through the end of this year.
Their reasoning: “Officially, the Fed has yet to acknowledge the economy’s soft patch, suggesting policy has not yet been affected.”
Others think the central bank might call a temporary halt to rate increases when the lending barometer starts to approach 4 percent, presumably in early autumn.
EQUITIES
Set for a seasonal slump
There is an old, ugly saying in the stock market that investors should “sell in May and go away.”
The reasoning: Gains on Wall Street are difficult to realize during the five warmest months of the year. Those who follow the maxim say it’s smart to lay low until nearly the end of October.
In recent days, investors have turned cool toward stocks because of growing doubts about the expansion of corporate profits. In particular, they were disappointed when first-quarter gross domestic product numbers showed the nation’s growth proceeding at only a 3.1 percent pace.
Economist Ian Shepherdson, of High Frequency Economics, Valhalla, N.Y., says much of the gloom stems from the spike in oil prices.
His bottom line: “Growth likely will be slower in the second quarter than the first, but the plunge in oil and wholesale gasoline prices over the last few days at least means there is light at the end of the tunnel.”
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