Adrift. Last week I said the markets would likely drift because we were near the end of the month and the end of the quarter, and that’s pretty much what happened. Absent any major international news that might add a jolt of uncertainty into the markets, traders are waiting for new data. The markets did tend to move downward, in part because traders also are positioning their portfolios for the end of the quarter, which is less than a week away. On Monday, weak manufacturing data from China and mixed signals from the Federal Reserve on interest rates sent the Dow slightly lower. The news from China was particularly unsettling because it showed not just slower growth, but actual contraction in China’s manufacturing sector. Factory output shrank at the fastest clip in 18 months.
Despite good news. The downward drift came despite some good economic news this week. The Commerce Department said orders for durable goods increased 2.2 percent in February. That was good news following the 1.3 percent drop in January. The increase was the largest amount since November. Investors also liked the jump in consumer confidence. The Conference Board consumer confidence index rose to 82.3 in March, up from 78.3 in February. That’s the highest reading since January 2008, before the financial crisis. And the Gross Domestic Product number for the fourth quarter of last year was revised upward. The government said, for example, the economy in the fourth quarter grew at a stronger pace than previously estimated. Gross domestic product in the last three months of 2013 increased at an annual rate of 2.6 percent, up from the previous estimate of 2.4 percent, the Commerce Department said.
Employment looking better. We’re still a week away from the next unemployment number. That’s the big monthly report everyone pays attention to, but we are getting an indication of what direction we’re headed. This week, the government said the number of people seeking U.S. unemployment benefits fell 10,000 to 311,000, the lowest figure since late November. Any time that number falls below 350,000, experts say the economy is creating jobs. And we’ve been below that number for a year or more.
Explaining the numbers. I occasionally get feedback from readers who say that when we report these numbers uncritically, we are essentially telling people what the government wants them to hear. Is that true? I plead innocent to serving as a mouthpiece for the government, but I will admit the government reports don’t tell the whole story. The Labor Department numbers fail to measure the number of underemployed, for example. They fail to account for discouraged workers, who have simply given up on their job searches. So why report them? Because while they don’t tell the whole truth, the government numbers do provide helpful clues. There’s really only one reason the markets go up on any given day, when we have more buyers than sellers. Markets go down when there are more sellers than buyers. That’s it. Price is determined by supply and demand. The same is true of the labor market, too. And because we have millions of buyers and sellers and workers, there are millions of reasons for the ups and downs in the market, or the jobs numbers.
Painting a picture. So if there are millions of reasons, why just focus on the one or two data points that come from government reports? Aren’t we just trumpeting what the government wants us to say? There’s a danger of that. I need to be careful about the information I share and you need to be careful about the information you consume. But these government reports, combined with reports on the job market from private sources (such as ADP’s employment data and The Conference Board’s Consumer Confidence Index), slowly paint a picture. An impressionist painter uses not just brush strokes, but dots of color. If you look at the painting up close, it just looks like a bunch of dots, but when you step back, you see an image. So while I would warn against reading too much into any single government report, I make no apologies for reporting them.
The week ahead. It’s going to be a quiet week for reports. We’ll get auto and truck sales numbers on Tuesday, as well as construction spending numbers. But the big number everyone’s waiting for is the unemployment report on Friday. Then, the following week we’ll begin earnings season in the stock markets, and when that happens, we should see market volume and volatility pick up considerably.