Thursday, May 03, 2007

Economy Re-Accelerating?

There has been much angst about the housing market and its potential effect on the economy, but recent data may indicate that the economy is re-accelerating. Jobless claims, which had been rising, are now falling again. Weekly claims fell to 305,000 last week; anything under about 350,000 is usually associated with a growing job market. In addition, the ISM surveys are rebounding. The manufacturing survey rebounded to 54.7 in April and the non manufacturing survey, released this morning, rose to 56. Both figures were better than expected and a number over 50 indicates expansion. Lastly, the productivity and employment cost numbers released this morning were also better than expected. The mid cycle slowdown may be ending.

Obviously, that is good news, but it may also mean that the likelihood of a Fed rate cut is approaching nil. The Fed meets next week and I do not expect any changes in the rate or the statement that accompanies the announcement. The Fed is still more worried about inflation than growth, as they should be. I haven't been in the rate cut camp anyway, but it will be interesting to see how the lower rate/better growth dynamic plays out in the market. I suspect better growth will give comfort to the recesssion worrying crowd and that could give us another push higher in stock prices.

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