Stocks remain well supported, with the S&P 500 Index crossing 4,000 for the first time last week, as the incoming data show an accelerating economy with the reopenings, supported by vaccines and massive stimulus.
The beginning of every month brings timely business surveys and the closely watched labor market report. These indicators are very encouraging for the economic recovery that’s unfolding and support our positive outlook for stocks and cyclical economic sectors.
Strong and Broad-Based Job Recovery
The recovery in the labor market accelerated in March, as payrolls expanded by a much better than expected 916,000 with unemployment falling further to 6.0%. In addition, the prior two months job gains were revised up by a large 156,000. The rebound from February’s winter storms, vaccine rollouts, more reopenings, and expected additional fiscal support all contributed to the surge in hiring.
Nearly 60% of private sector jobs were in three industries: leisure and hospitality (+280K, mostly restaurants and bars), private education services (+64K), and construction (+110K). The first two mainly reflect the reopening of the economy, as COVID restriction rules have eased, while the latter largely shows a rebound from a weather-depressed jobs market in the previous month. Most other industries added to payrolls, captured by a jump in the employment diffusion index to its highest level since 1998.
We expect these outsized job gains to continue in the coming months, which we see supporting a self-sustaining economic expansion as the pandemic ultimately fades.
Consumers Gaining Confidence
The Conference Board’s Consumer Confidence Index jumped to the highest level in a year, and well above expectations. It was the biggest gain in confidence since April 2003. The renewed sense of
optimism comes on the heels of the $1.9 trillion American Rescue Plan and an accelerating pace of COVID vaccinations. Consumers’ assessment of both current business conditions and job availability improved, while purchasing plans for the next
six months for homes, autos, and big-ticket items rose. Home buying plans hit a record high and exceeded their seasonal tendency, which bodes well for future housing demand. This improving consumer confidence is historically consistent with above-trend
Manufacturing Surge Continues
The ISM Manufacturing Index (a timely manufacturing business survey) surged to its highest level since December 1983. The survey suggests that the V-shaped factory activity recovery that began after last spring’s hard lockdown has gained significant strength. Of the 18 ISM industries, 17 grew last month. Notably, the six largest manufacturing industries registered strong growth.
There was also broad-based increases across index components with the employment indicator reaching its highest level since February 2018, while order backlogs accumulated at a record pace. In addition, survey respondents expressed more optimism about the growth outlook.
The strength of the ISM survey was confirmed by the Markit U.S. Manufacturing PMI (a second timely business survey) which rose to its second best level on record—indicating strong factory activity growth.
Global manufacturing indicators are also painting a bright economic recovery picture. The J.P. Morgan Global Manufacturing PMI rose to a 10-year high as growth of output, new orders, and employment accelerated. PMI readings were above 50—signaling expansion—in 23 out of the 27 countries surveyed. The combined euro area reached its highest level ever recorded with improvements also signaled for Japan and China. All of this is indicative of a synchronized global expansion.
These manufacturing surveys are also consistent with above-trend growth in both manufacturing output and the broader economy. We continue to favor cyclical sectors, including Energy, Materials, Industrials, and Financials, which all benefit from improving
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