The Week in Review

The Jobless Claims series is as good a leading indicator as they come.  This series has served in that role since Q4 2008 when it began to recede from an all-time high. And Claims have been improving since last year’s Q2 soft spot. It is no coincidence that jobs-related activity has blown through expectations, Q1.

Thursday’s Claims print for the week ended Feb/4 fit our desk anchor nicely as the number of claimants fell 15M when observers expected no change. (We predicted in an earlier sketch that economists might even over estimate the strength of this release, correcting from past wide misses. That did not happen.)

Still, some note that since the pick up in production which prompted this decline in layoffs and spark in hiring was mostly to fill inventories, they fret that the earnings that go with more workers won’t be enough to clear the shelves, Q2. That is, companies may have gotten ahead of themselves. And finally, these types site consumer de-leveraging as another retardant to near term growth.  They are wrong on both counts.

Yes, consumption slowed a tad Q4, more than we expected, now only 6.5% above the year ago level. But it will gather momentum into Q2. To parrot modest earnings and hours from the latest BLS report is easy, but not key. What economists miss, as usual, is attitude, both for consumer and small business! There is no fear factor in this country (despite what consumers may tell pollsters). E-Z events are amusing, a distraction, but not a worry; consumers never heard of contagion, and wouldn’t care if they did. And we learned this week that to get set at the starting gate for Q1, consumer credit jumped in Dec/11, the 14th increase in the last 15 months.  

Next, in a recovery it is small business that contributes roughly 2 jobs for every one generated by large corporations. And we see obvious signs of a small business revival. Access to credit has improved as shown by the surge in banks’ commercial and industrial lending. And the index of capital expenditures intentions as measured by the National Federation of Independent Business, is climbing.

What we have seen this week then supports that advice extended to clients – US economic activity ahead will continue to flatten Wall Street estimates.  Our efforts at this center are designed to spare clients the necessity of having to react to the economic news; that is, we aim to prepare clients up front for significant changes to the contour of the economic landscape just ahead.

From Reuters this week: “A few months ago economists were all but certain that the US economy would slow sharply at the start of this year, with many warning that recession risks were growing. That pessimism has been shaken off by a string of surprisingly solid data that paint a picture of an economy building momentum.”

Clients were prepared for this reality and were thus in ownership of a long leg up on price discovery.

Robert Craven