The Week in Review

US – Well, son-of-a-gun, it appears that Mar jobs creation did not meet our expectations.

One thing’s for certain - last Friday was the day the majority of prophets have been looking for, and for months.  Now finally they can say, “I told you so.”  And so it goes with this bunch.

Despite our best efforts, we’ll miss a few.

Let’s take a look at last week’s Mar NFP.  We predicted that earnings would finally do well.  Hourly earnings cooperated but the workweek retracted, so weekly earnings followed suit, shedding 0.1%.  And the headline print was nothing to cheer about, although a quick look showed that unusually warm weather the prior three months and then more seasonal weather in March produced the payback. That is, the dry weather especially in Jan and Feb did allow some seasonal industries to keep workers on through the winter, reducing the need to hire in the spring.

Interesting thing about weather is it not?  It is not a secret to observers when they make their estimate. Most simply ignore it as it usually trips them up.

And then there was that Unemployment print of 8.2%.  That rate only fell because the labor force shrank by 164M. But then it is pleasing that the augmented unemployment rate fell too from 14.9 to 14.5% (discouraged, marginally attached and part-time). And private-sector employment increased for the 25^th straight month, an average of 162M per month; not bad at all given we have an administration which has done everything it could to inhibit jobs growth, this sector.

All in, job creation has accelerated over the past three months - a 212M average vs 164M average the prior three months. Our view is it will continue to accelerate the balance of 2012.

Finally, the disappointing Payroll result made Bernanke out to be a prophet. He lucked out. He went out on a limb with his NABE speech as Lacker, Fisher and others beat him severally about the head and shoulders.

E-Z – Results last week were an exact fit with our desk anchor as evidence continues to build that the E-Z is headed for the dumpster, and quickly. Others are coming to understand that which our clients understood early Q1. We have known for some time this sector would “disappoint” and why, and that included Germany. Indeed, as one news source put it last week, “An unexpectedly sharp slump in German industrial output in February fuelled concern that the economy…is on the brink of a recession…”   Better to anticipate than react. And the notion that the there is some sort of consumer “boom” in Germany is pure fantasy.

UK – We are also pleased with results for this credit.  Naturally things are slow, but our task is to determine where, if anywhere, a flaw may exist.  We have known that observers continue to just miss activity ahead – their collective bias is to underestimate.  Sure enough, following a surprise acceleration in manuf growth in March, we see that the construction sector PMI flattened estimates, rising in Mar to a 21 month high, orders at the fastest rate in 4 ½ years.

Thus, repeating from our last post, look for the US to continue to distance the E-Z; look for the UK to widen the gap to the E-Z.   This folks represents reality over the intermediate term.

Robert Craven