Daily Dispatches
Students talk to a recruiter at a job fair on the campus of Kaplan University in Lincoln, Neb.
Associated Press/Photo by Nati Harnik
Students talk to a recruiter at a job fair on the campus of Kaplan University in Lincoln, Neb.

Dollars and Sense: Too much good economic news?

Money

Unemployment uncertainty. This week’s big surprise: the unemployment number. The big question remains, what does it mean? Most analysts had expected the unemployment rate to stay at 6.7 percent, or to drop slightly to 6.6 percent. But it fell to 6.3 percent. The economy created 288,000 jobs last month, more than expected. It’s hard not to see that report as good news, but the markets didn’t think it was that good. The U.S. markets dipped on Friday, the day the numbers were announced. Part of the reason for the decline was an increase in global tensions. But analysts also attributed the lower unemployment rate to a reduction in the number of workers in the labor market, which contributed to the markets’ jitters. Economists will scour the numbers for months to figure out whether the reduction in the workforce, which has become a long-term trend, is the result of discouraged workers responding to a too-weak economy, or a permanent demographic shift of baby-boomers to retirement.

Solid earnings. Earnings season is now all but over, and it has been better than expected. Sixty-eight percent of companies so far topped earnings expectations, significantly better than the historical average of just 63 percent. Year-over-year earnings growth has been about 3.7 percent. This growth has kept the Dow at near-record levels, and on Wednesday it set its first record of the year as analysts decided the solid earnings supported current price levels. But do current earnings support higher price levels? Analysts are looking to future corporate guidance reports to answer that question. If you’ve been reading this space for a while, you know that for a good bit of last year we said earnings remained in line with expectations, but revenue and future guidance was not as strong. In the past few months, that’s changed to the positive. Analysts are projecting earnings growth of 5.5 percent over the next four quarters. That positive data, plus the fact that the Fed is still pumping tens of billions of dollars into the economy every month, all point to a continuing rally in the months ahead.

Economic reports upbeat. Last week’s economic reports were also mostly upbeat. The Conference Board announced April’s consumer confidence number—82.3. That’s slightly worse than expected, and slightly worse than last month, but still strong by the standards of the past few years. The S&P Case-Shiller home price index showed a continued trend toward rising prices, with the 20-city index rising 0.76 percent in February. Home prices are up nearly 13 percent in the past year. 

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Too much good news? If all of this good news makes you nervous, that just means you’re a wise person. Take the unemployment rate, which continues to show big regional differences. I’m in Houston, where the energy boom has the economy roaring. It’s easy to forget problems exist in other parts of the world, and—in fact—the energy boom is at least in part happening because of those problems, the result of efforts to wean us from foreign oil. Among the hot spots around the world: Tensions between Ukraine and Russia continue, and that drove the markets down pretty dramatically a week ago Friday. That decline continued into Monday, when things stabilized. But last Monday, President Barack Obama imposed further sanctions against Russia. A violent outbreak in Ukraine could swamp all this good news.

Europe’s hangover. The problems in Ukraine and Russia are having a particularly negative effect in Europe, where the recovery from the Great Recession has been even slower than in the United States. The British economy grew at an anemic 0.8 percent in the first quarter. Unemployment in Europe overall remains at nearly 12 percent. Spain announced last week unemployment hit 25.9 percent.

The week ahead. It will be a pretty quiet week for economic reports, and earnings season will be winding down. After all the hand-wringing is done, it’s likely the markets will like both the unemployment number and where we ended up after all the earnings reports are in. So barring any big troubles on the world scene, the pressure on the markets likely will be in the positive direction in the week ahead.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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