Economic Recovery Trumps Oil Worries
Some incredibly positive domestic economic news overpowered the growing chaos in Libya, leading to a slowly rising week for stocks. Over the weekend, fighting in Libya escalated, as security forces loyal to Muammer Gaddafi fired into homes, killing innocent civilians. Despite wild oscillations in crude oil prices, the economy is clearly recovering. Libya is still a major market concern, but if we see greater political freedom emerge in North Africa and the Middle East, this could be a major plus.
On Wednesday, Automatic Data Processing (ADP) announced that private payrolls surged by 217,000 in February. Then, on Thursday, new jobless claims during the latest week declined 20,000 to 368,000, the lowest level since May 2008. (In three of the past four weeks, new jobless claims came in below 400,000, and the four-week average has fallen to 388,500, the lowest level since July of 2008.) Then, on Friday, the Labor Department announced that total non-farm payrolls rose 192,000 in February. After subtracting 30,000 jobs lost in state and local governments, private sector jobs rose 222,000 in February. In addition, the January figure was revised higher by 63,000 jobs, and the unemployment rate fell to 8.9% in February.
The stock market actually fell on Friday, after the payroll report was released, but the good job news released earlier in the week lifted the market in advance of the final confirmation on Friday. Overall, the private sector job growth in February was the strongest we've seen since April 2010, so Wall Street is celebrating the fact that job creation may finally be accelerating. However, I need to point out that the average work week remains unchanged at 34.2 hours. It needs to get to 37 or more hours to generate a more dramatic rate of job growth and to push jobless rates down to historic recovery norms around 5%.
The positive job situation was confirmed by statistics from the Institute for Supply Management (ISM). On Tuesday, ISM reported that its manufacturing index rose to 61.4 in February, up from 60.8 in January, the 19th straight monthly expansion. In addition, the backlog of orders rose to 59 in February from 58 in January as companies continue to rebuild their inventories. Then, on Thursday, the ISM service (or "non-manufacturing") index surged to 59.7 in February, up from 54.9 in January. This dramatic 5-point surge in the ISM services index was not expected and is great news for the job market, since the United States has many more service workers than manufacturing workers. As further evidence of an improving job market, the ISM employment index rose to 55.6 in February, up from 54.5 in January, which is very positive news.
Another positive sign for the U.S. economy was that personal income rose 1% in January. If you put more money in people's pockets, they will likely spend it. Sure enough, major U.S. retailers reported on Thursday that their February sales remained strong and were higher than analyst's estimates. Brian Sozzi, a retail analyst at Wall Street Strategies, said, "February 2011 will go down as a month where improved consumer sentiment, tax refunds and stimulus in paychecks created a spark in the minds of consumers to buy discretionary goods and not be so stringent on the type and amount of daily necessities bought."