Are Wall Street And Markets Doing The Two Step?

Paula Abdul and that foxy MC Skat Cat got everyone jumping 24 years ago when she serenaded us with “I take two steps forward and two steps back, we come together ‘cause opposites attract”.  A few Investors seemed to adhere to the same thought process when contemplating where the economy and Fed Chair Yellen are heading. Two steps forward and two steps back going nowhere. From GSA’s perch the economy is about to finally hit breakaway velocity from the grips of the bruising recession and trend growth reaching 3% or better going forward. We’ll get right to it and share why we believe the pundits have been just plain wrong  and if they don’t alter their view they’ll continue to be so and miss the upcoming rally in equities. 

Where we are:

JOBS- Non-Farm Payrolls. Hot off the presses this morning Non-Farm Payrolls came out this morning at a surprising +248,000.  This compares favorably with the twelve month average of 213,000. The quality of jobs was also supportive of an improving base with Professional and Business Services up +81.000 compared with the average +56,000 over the prior twelve months. Healthcare added +23,000 while construction tacked on +16,000.  The unemployment rate ticked down to 5.9% The participation rate held steady at 62.7% The workweek ticked up +.1 to 34.6 hrs. Hourly earnings were virtually unchanged at $24.53 hr. which reflects a 2% gain over the prior year. There were also big revisions to the prior two months.  July’s figure was revised to +243,000 vs the originally reported +212,000.  The August figure which was hugely disappointing was revised up to +180,000 from the original report of +142,000. Taken together the original releases were under-reported by +69,000 and a solid report overall.   

Leading Economic Indicators-LEI.  LEI increased +.2 in August. This gain builds off July’s +1.1 and June’s +.7.  The LEI suggests an economy that is continuing to gain traction but not as aggressively as the earlier growth rates of the second quarter. Released along with the LEI is the Coincident Economic Indicators-CEI.  CEI a measure of current economic conditions continued on its expansion in August as well inching up +.2% following a +1% in July. Strength was reflected in personal income, employment and retail sales which were somewhat offset by weakness in Industrial Production. LEI continues to suggest an economy expanding at a reasonable pace for the next few quarters.