The U.S. Created 263,000 Jobs in April, Well Above the 190,000 Expected… The unemployment rate dipped 0.2%, falling to 3.6%, but the labor force participation rate also dropped 0.2%, from 63% to 62.8%.
What it means – After ugly numbers in February and March, investors cheered April’s surprise, especially noting the 0.2% increase in average hourly earnings, which are 3.2% higher for the year.
There wasn’t much bad news in the report, just a slightly lower participation rate, although that should increase over time because it includes everyone over 16, meaning that as people retire, the participation rate will fall. Hours worked also dropped by 0.1%, but that’s not enough to worry about. For anyone tracking the birth/death adjustment, the clairvoyant researchers at the Bureau of Labor Statistics added 281,000 jobs not in the data, more than eclipsing the total for the month.
While the report was clearly positive, the knock-on effects might not be. Decent economic data gives more weight to the idea that the Fed might be more inclined to raise rates in the months ahead rather than lower them, a negative for equities.
The Federal Reserve Left Rates Unchanged… Noting solid economic activity and soft inflation, the central bank left rates unchanged and the door open for a future move either way.
What it means – By the end of 2018, the equity markets were puking, and the economy was losing steam. The Fed’s latest interest rate hike looked out of place and may analysts called for a rate cut. During the first quarter, growth picked up a bit and the Fed stood pat, leaving short-term rates at 2.25% to 2.50%. This week, the Fed once again left rates unchanged, but Chairman Jerome Powell noted that low inflation seemed transitory, which implies the governors think inflation might pick up in the weeks and months ahead.
This line of reasoning left investors wondering if the next move might be higher, not lower, so equities traded off a bit, but that seems like nitpicking. The Fed delivered a “nothing burger” and told the markets that they won’t do anything until they see clearer signs of economic change. It’s the same old “data driven” line we’ve heard before. To prove the point, the market move was miniscule, and reversed by the next morning.
Eurozone First-Quarter GDP Grew 1.6%… Over the same period last year, GDP increased 1.2%.
What it means – Economic activity in the eurozone expanded twice as fast in the first quarter as expected, but that’s not saying much. Growth remains far short of 2%, even as the ECB holds deposit rates at negative .40%.
The European economies are struggling both with trade issues and internal manufacturing. Specifically, car companies aren’t selling as many units as they used to. With Germany dependent on the likes of Volkswagen and Daimler, weak car sales translate into weak GDP growth.
S&P/CoreLogic Case-Shiller 20-City Home Price Index Up 3.0% in February Over Last Year… The annual price gain dropped a substantial 0.5% from the 3.5% reading in January.
What it means – In a report certain to surprise no one, the Home Price Index is slowing dramatically, falling in line with what we’re seeing in the monthly existing and new home sales markets. Of note in the report was that annual gains in San Francisco, Los Angeles, and San Diego were all less than 2%, with San Diego at the bottom of the pile showing growth of only 1.1%.
Factory Orders Up 1.9% in March… Excluding cars and airplanes, orders rose a modest 0.3%.
What it means – The small growth in factory orders excluding transportation masks a big positive that we also saw last week in durable goods orders. Non-defense factory orders excluding aircraft, also known as core capital goods and seen as a proxy for business spending, increased 1.4%.
That’s decent growth and, if continued into April, would bolster second-quarter GDP.
We Company Filed Paperwork to Go Public… The company formerly known as WeWork submitted paperwork to the SEC at the end of last year to sell shares to the public. The firm famously rents high-end spaces that it converts to office space offered by the individual desk. The collaborative work spaces often include beer taps and recreation equipment, mimicking tech startups.
We Company consistently loses money, but as a private company it reported such convoluted metrics that investors weren’t exactly sure of how much. After reversing such questionable things as “community adjustments,” it looks like We Company doubled its revenue in 2018, but also doubled its losses.
On top of worrying about financial results, the firm’s basic business model raises questions. By committing to long-term leases of high-priced spaces, We Company could face significant risk during the next downturn as many one- and two-man shops close and stop leasing their desks.
The company recently had a valuation of $47 billion, which seems extreme. That would make the firm not just a unicorn, but a unicorn on fire, which might be fitting since it burns so much cash.
Data supplied by Dent Research/Delray Beach Publishing
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