Data Strays Further From Fed Outlook

Market Trends - 16/04/2015

Yesterday’s Federal Reserve Beige Book release had many optimistic comments about the US economic outlook despite concerns when looking at the latest indicators for the labor economy and housing sector. According to the Beige Book, most regions experienced expansion over the last 6-weeks of the first quarter with retail sales improving and labor markets staying relatively stable despite the mounting losses in the energy sector. Most importantly was the note on improving wages and inflation which are the harbingers of brighter economic times. However, in contrast to the labor economy and housing sector comments, real data seems to offer a completely different perception of the economy. Although slowing housing starts were attributed to the weather situation, which was mentioned 71 times in the latest report, today’s housing starts saw no major reversal in the figure, with housing starts edging up 2.00% month over month compared to the -15.30% slide witnessed in the prior period. Building permits added to pessimism, tumbling -5.30% month over month compared to an expected -2.00% decline.

Looking at employment, the timing of the Beige Book commentary might have been slightly over-optimistic with the waiter and bartender employment recovery fizzling out. Initial jobless claims managed to stay below the despised 300,000 threshold, but nevertheless experienced the worst miss to expectations in 8-weeks after printing at 294,000. More concerning was the drop in continuing jobless claims which fell to the lowest level since the year 2000. This implies that more people have lost long-term benefits and have not been able to reenter the labor market, instead becoming part of the tumbling labor force participation rate. Eligible workers dropping out of the labor force is not a particularly strong sign of economic recovery which means that the Federal Reserve in its efforts to remain data dependent is solely focused on momentum in the Dow Jones Industrial Average and S&P 500 to benchmark a recovery. The reaction in the dollar has been protracted weakness, with the squeeze higher in the Euro further exacerbating losses in the currency.


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