Daily Bullets……….For May 5, 2014

·         Solid job growth through summer…..Conference Board’s employment survey was positive, ticking up to 118 and up 5.5% vs. a year ago. Conference Board cited job growth as “robust”.

What’s the point?  More indication that U.S. economy is accelerating. Stronger job growth has multiple implications: stronger consumer spending, stronger housing, market, stronger manufacturing activity. So we are moving to a “positive feedback” environment in which multiple sectors of the economy help to support and reinforce growth, hence improving the strength and sustainability of economic growth. Link: http://money.msn.com/business-news/article.aspx?feed=PR&Date=20140505&ID=17586128&topic=TOPIC_ECONOMIC_INDICATORS&isub=3

·         ISM data also quite positive………U.S. service sector activity accelerated in April, according to ISM survey. Both business activity and new orders surged and were well ahead of expections.

What’s the point? The fact that service sector activity is accelerating reflects breadth of improvement of the economy, i.e., that the recovery is broadening and therefore strengthening. After several years of very sub-par growth, the data now seem to be indicating the economy is stepping up to stronger pace. While this is positive for corporate earnings, it raises the risk that wage inflation could accelerate. This would raise concerns among investors that inflation could also accelerate. Our belief is we are still quite a ways from a significant increase in wage inflation. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&Date=20140505&ID=17586234&topic=TOPIC_ECONOMIC_INDICATORS&isub=3

 

·         Economists further increase growth expectations to 4s range……Based on recent economic data a number of economists have raised their estimates for real GDP growth to the 4s range, meaning in excess of 4% growth. Economists cited as reasons significant improvement in corporate capital spending and rebound in housing market.

What’s the point? U.S. economy could well be accelerating into a stronger growth pace that would support higher capital spending. We believe corporate capital spending, including technology-related spending, and housing will be among the stronger sectors of the economy. While consumer spending should rebound somewhat, we still believe consumer spending will remain subdued relative to previous recoveries over the past 40-50 years. Link: http://www.cnbc.com/id/101642225?__source=msn|money|headline|headline|story|&par=msn&topic=TOPIC_ECONOMIC_INDICATORS&isub=3

·       Factory activity in China slowing further…..We note that factory activity in China slowed again in April, reflecting sluggish manufacturing and slower export activity.

What’s the point? China is now a dominant economic power and the course of its economy is now highly significant for global growth. While we think China will probably be able to “engineer” reported growth in the 7-7.5% range, should its growth slow more significantly, it would likely have negative repercussions for other economies, particularly other emerging market economies. Because of its size and diversity, we believe the U.S. economy would be more insulated to slowing in China’s economy but would feel some impacts nonetheless. Link: http://online.wsj.com/news/articles/SB10001424052702303417104579542641370266378?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303417104579542641370266378.html