Change in non-farm employment.
Last week began quietly, but finished with a swirl of news that had more meaning for selling news than for the strength of the economy. Spreads tightened while stocks reached highs not seen in almost four years.
The markets got a strong dose of confirmation that the world's largest central banks will continue with aggressive monetary policies until their respective economies have strengthened significantly and the risks of global financial crises have diminished. Fed Chairman Bernanke was first to defend the latest round of quantitative easing, saying that the case to provide additional stimulus last month "seemed clear" given high unemployment and tame inflation. Later that week, the ECB President Draghi defended the Outright Monetary Transactions (OMT) bond-buying plan by pointing out that it is within the central bank's mandate and would remain in place until its objectives are achieved. This has helped temporarily calm the sovereign debt crisis in Europe and keep Spanish and Italian yields near their six-month lows. Nevertheless, a sustainable solution to the debt debacle is yet to be agreed upon.
Here in the U.S., the unemployment rate decreased to 7.8%, after bouncing between 8.1% and 8.3% since the beginning of the year. Jack Welch, the former General Electric CEO, made news by implying that the BLS has manipulated the unemployment numbers to boost President Obama's approval in the upcoming election. This had little real impact, and I would caution against looking too deep into the number, as it is just one data point. The more important factor to monitor is the ability of the economy to generate jobs and last month's increase of 114,000 in nonfarm payroll employment is nothing to write home about. The U.S. economy needs to add about 150,000 jobs per month just to keep up with growth in population. Declining unemployment is a positive trend, but to have a significant impact it has to sustain for a few quarters.
The decline in last month's report of durable goods orders reconfirmed the signs of deterioration in the manufacturing sector. Bookings fell by 13.2%, the third largest decline of the last two decades. While the majority of this was due to a fall in aircraft orders, the core (non-transportation) index also fell sharply and has now moved lower for three straight months and in five out of the last six. All of this comes to remind us that the economy is improving, but the process will be slow and uneven.