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By

Rank Dawson, CFA

Growth and inflation continue to increase and there are signs of positive developments in the labor market despite the below consensus nonfarm payroll number.

The PMI data for the month of May continued to support the ongoing trend of higher growth and inflation.  The ISM Manufacturing PMI increased 0.5 points to 61.2, the second highest level since May 2004.  The Markit version has a shorter history and increased to a new record of 62.1.  Within the ISM report, new...
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Services activity is starting to accelerate as in-person activity is taking place and goods activity is slowing as a large amount of demand was pulled forward in 2020.

Economic activity is shifting toward services and away from goods as mobility and venue capacity increase.  Durable goods activity declined on a month-over-month (MoM) basis in April for the first time since April of 2020.  Durable goods are typically larger purchases that have long lives, so it was very likely that activity was going to...
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Supply remains the biggest force impacting economic activity. Some policy changes may impact the supply of labor this summer.

Data from the prior week continued to highlight how supply constraints across the economy are putting upward pressure on prices.  There are some signs that this could eventually impact economic activity.  Some states are making changes to their unemployment policies that may cause supply to increase and bring down continuing jobless claims. Markit provided updates...
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Supply constraints continue to push inflation measures higher. If supply continues to be an issue, it could lead to weaker growth and have a negative impact on asset prices.

We have been writing about the rise in cost pressures due to improving economic activity and ongoing supply constraints.  This has become a mainstream concern and something that can have major implications on asset class returns.  Predicting how long these inflationary pressures will last is not possible, but we can monitor some market-based indicators to...
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Supply constraints continue to be the main issue surrounding economic data and these constraints have spilled over into the labor market.

For the last few weeks, we have been highlighting that supply has been the major constraint on activity as the economy continues to normalize.  The data this week continued that trend across multiple economic and market data points. The April Manufacturing and Services PMIs were released, and both remained at high levels (the ISM versions...
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Consumer data continues to improve and reinforce the ongoing trend of accelerating economic and inflation data that has been reported for the last several weeks.

Consumer data in the U.S. continues to make steady progress as improving labor market data supports incomes and confidence, which is helping spending.  Personal income data increased by a record 21% month-over-month (m/m), driven by the newest fiscal stimulus benefits.  Employee compensation (wages) increased by 1%, the most since August 2020.  Proprietor’s income (business ownership)...
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Economic growth and inflation data continue to improve, which is leading a rise in equity and commodity prices and a decline in volatility.

Economic data was light this week but continued to point to increasing economic growth and inflation.  The Conference Board’s Leading Economic Index increased 1.3% and all ten components made positive contributions. The Chicago Fed National Activity Index, which is comprised of 85 monthly indicators of national economic activity, increased to the highest level since July...
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Recent inflation and consumer data have been strong, continuing the streak of positive economic data, but some market signals have shifted.

Economic data from the month of March continues to be strong while the market signal trends in April have shifted in certain areas. On the economic front, consumption continues to be very strong, as retail sales data in March increased 9.8% month-over-month (m/m), 14.7% year-over-year(y/y) (fastest pace since February 1979) and is up 22% compared...
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As March economic data continues to be released, the data suggests that economic growth and inflation will increase in Q2 2021.

Our recent posts have been aimed at determining if the weakness in economic data from February and the decline in performance of cyclical and inflation sensitive assets was a sign of a change in the trend that started in November, or if it was just a temporary setback. The economic data this week continued to...
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The economic data and market signals from last week were a positive sign that the weakness in February data was not the start of a new downward trend in economic activity.

We noted last week that February macro data had decelerated and that market signals in March had shifted to favoring defensive assets.  After reviewing several data points, we concluded that the trends still seemed to be positive.   One week is not a long enough period to determine if February was a false signal, but the...
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