Initial Jobless Claims came in today at 320,000, well above the consensus expectation of 295,000 and the highest level since last May. This is not a one-off. Over the past month, economic data in the U.S. has consistently fell short of expectations. Below is a list of examples which includes data on manufacturing, housing, retail sales and more.
The Citigroup Economic Surprise Index illustrates a running tally of the “beats†and “misses†as it increases in value with better-than-expected data and declines on worse-than-expected data. As you can see, it has been moving straight down of late and the string of data “misses†has not been this persistent since 2012.
S&P 500 company earnings also came in far below expectations entering the year, with 4thquarter earnings declining 12% versus the 4th quarter of 2013. This decline was the largest since the expansion began in June 2009.
In February, U.S. equities not only ignored weak economic data and earnings, but seemed to consistently rally on their release. With new all-time highs reached once again in a vertical fashion, the market was delivering a resounding “we don’t care.â€
Why don’t market participants seem to care? There are a number of possible reasons, including:
1) While worse than prior years, we have seen this movie before with weaker economic data in the first half of the year only to be followed by stronger data in the second half. Because of this pattern, no one actually believes the weak data will persist into anything resembling recessionary conditions.
2) On the earnings front, most believe the decline will be temporary and by the fourth quarter of 2015 companies will be reporting 30% year-over-year growth.
3) The weakness in economic data and earnings has coincided with a tidal wave of global easing. Thus far in 2015, over twenty central banks have announced easing measures. In March alone, we have already seen rate cuts by China, India, and Poland.
