Stocks reached record highs again last week, as the incoming economic data remains consistent with an improving economy and higher profits.

The consensus is now calling for historically high second-quarter economic growth of 12.8% year/year, with corporate profits expected to grow 60%. While growth will surely moderate in coming quarters, we remain encouraged by healthy consumer and labor market indicators that suggest a healthy, sustainable recovery should support stocks as we head into the back half of 2021.

U.S. Economic Readings Remain Encouraging: The OECD U.S. Composite Leading Indicator (CLI) rose for the 13th month in a row and to its highest level since August 2018. Gains in the CLI have moderated, suggesting future growth will also moderate after the strong rebound from the pandemic lockdowns.

The NFIB Small Business Optimism Index saw its first decline in four months on lower expectations for future growth. However, Job openings and hiring plans both hit record highs, a positive sign for job growth going forward, particularly as labor supply constraints ease later this year with the expiration of enhanced unemployment benefits. A record number of firms viewed their inventory as too low, reflecting strong demand and shortages. The need to rebuild inventories is positive for future economic growth.

Record Job Openings Bode Well for the Economy: In addition to the NFIB survey showing record highs in job openings and hiring plans, the JOLTS report is sending a strong signal for labor market conditions.

The number of job openings surged 12.0% in April to 9.3 million, a new record high. Layoffs fell to a new record low. The combination of more job openings and fewer layoffs indicates a significant increase in labor demand. However, hires barely budged, up just 1.1% to 6.075 million, amid ongoing labor supply constraints, including child-care options, lingering health concerns, and extended unemployment benefits.

The number of unemployed per job opening slid to 1.06, its lowest level since February 2020, indicating that a lot of the labor market slack that was created during the recession has been eliminated. Tightening labor market conditions are raising worker confidence, as evidenced by the jump in the quit rate to 2.7%, a record high.

These positive labor market indicators are being confirmed by falling weekly jobless claims. Initial claims fell again last week, down in eight of the past nine weeks, to 376,000, another pandemic low. Continuing claims and the insured jobless rate also made new pandemic lows. All of these labor market indicators are consistent with further declines in the unemployment rate, higher consumer confidence, and spending capability that should support future economic growth.

Indeed, the Michigan Consumer Sentiment Index improved in June with expectations reaching its highest level since February 2020, led by better prospects for employment and income.

We Continue to View High Inflation Readings as Temporary: While the Consumer Price Index (CPI) jumped 5.0% on a year/year basis, the most since August 2008, we see many pandemic-related factors that suggest these high readings will subside as economic activity normalizes in the coming quarters.

Global Leading Indicators Continue to Increase at Steady Pace: The OECD Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, continue to point to a steady expansion in the OECD area as a whole.

For all major OECD economies, the CLIs now point to a steady expansion. The CLIs have continued to increase steadily in the United States, Japan, Canada, and euro area. Among major emerging economies, the CLIs continue to increase at a steady pace in Russia and China. However, the CLI for India continues to moderate while the CLI for Brazil continues to point to slowing growth—both of these countries have been hit hard by the pandemic.

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