This Week's Major Macro Moves
It's been a busy week in the macroeconomic world, with manufacturing misses, erratic employment, and a deepening trade deficit. Macroeconomic reports provide investors unique insight into the wild workings of our economy, and the savviest shareholders keep mind of macro. Here's the latest on this week's major macro news.
Manufacturing had a case of the Mondays this week, with double-whammy lackluster May reports from Markit and the Institute for Supply Management. Both indices failed to meet analyst expectations. Markit's U.S. Manufacturing Purchasing Managers' Index registered output growth at a seven-month low, while the ISM's Purchasing Managers' Index dipped into the red for the first time since November. According to the ISM's index, May marks the second month since July 2009 that manufacturing has shrunk.
A subsequent productivity and costs report for Q1 2013 doesn't paint a pretty picture, either. Seasonally adjusted Q/Q productivity missed analysts' 0.7% expectations by 0.2 points, and a calculation error in last quarter's unit labor costs threw off any true comparison points.
The housing recovery might've gotten us into this Great Recession, but it's manufacturing that's going to pull America out. Indices are in dire straits, and with record-high inventories and shrinking new orders, May's reports don't promise any fast passes to profitable production.
Jobs, jobs, jobs
The productivity report implies that Americans are working more for less, which may partially explain this week's ADP employment report. Although the U.S. added 135,000 nonfarm private jobs in May, analysts had expected May to put 171,000 more workers to work.
The big news this week came on Friday, with a Labor Department announcement that the unemployment rate is back up to 7.6% after dipping down to 7.5% in April. However, the primary push behind the increase comes from a increase of 420,000 in the labor force, a not-so-negative sign for the labor market.
And while this week's initial jobless claims report provides a glimmer of hope with a 3.1% drop, the four-week moving average headed higher for the fourth week in a row. Jobless claims hit an unrevised recovery low in the start of May, but numbers have been very volatile over the past nine months.
Still, over a three-year period, initial jobless claims are down 24%, while nonfarm payrolls have managed a 5.6% increase.
The U.S. last enjoyed a trade surplus in 1975, and April's new report doesn't promise a turnaround any time soon. The U.S. trade deficit (imports minus exports) expanded 8.6% to $40.3 billion for April but managed to squeak below analysts' $41.2 billion expectations. And although imports increased by $5.4 billion, exports managed a $2.2 billion expansion.
Even though trade deficits may be some indication of economy activity, it's hardly the reason we're still reeling from the Great Recession. Over the past year, a 1.7% gain in exports and 1.4% fall in imports has helped improve the deficit by $6.3 billion. Steady inflation is keeping export costs competitive, and a focus on economic fundamentals will inherently lead to bigger exports and a stronger economy.
Stay in the macro-know
Manufacturing indicators point to an unsteady present and an uncertain future, while employment data keeps analysts on the fence about the labor market recovery. The trade deficit might've expanded in April, but the real focus remains on fixing our home economy.
Keeping track of macroeconomic reports is no replacement for careful company analysis, but it can provide crucial clues for the future our economy. Check back weekly for your fill of macro news, and you'll be well on your way to pulling predictable profits for your portfolio.
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