Fed Says Economy Has Expanded "Somewhat"; OK But What Is Priced In?

Bloomberg is reporting Fed Says Economy Expanded �Somewhat� in Most of U.S.

The Federal Reserve said the economy expanded �somewhat� across most of the U.S. in March as consumer spending and manufacturing improved, signaling the recovery is broadening without gaining much speed.

�Overall economic activity increased somewhat since the last report across all Federal Reserve Districts except St. Louis, which reported �softened� economic conditions,� the Fed said today in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.

Fed Chairman Ben S. Bernanke and his colleagues are debating how and when to tighten credit, including whether to modify a pledge to keep interest rates very low for an �extended period.� Earlier today, Bernanke told lawmakers there are �significant restraints� on a recovery he said will be �moderate� over the coming quarters.

�While labor markets generally remained weak, some hiring activity was evident, particularly for temporary staff,� according to the Beige Book. Consumer prices �generally remained level,� and producers had difficulty passing along increases in some raw materials, the Fed said.
Eleven of 13 major categories showed increases in sales last month, led by a 6.7 percent advance at auto dealers. Purchases of building materials jumped 3.1 percent, the most since November 2007, and receipts at clothing stores increased by the most in a year. Vehicle sales increased in recent weeks in eight Fed regions, the central bank said.

Reports earlier this month showed service industries expanded in March at the fastest pace since May 2006, while manufacturing grew at the quickest rate since July 2004.

�Business services were mixed, with some signs of economic recovery,� the Fed said today. Manufacturing increased since the last report in most of the U.S.

Four regions reported �strong demand� for temporary staffers, and in the Atlanta area, many companies kept increasing the number of hours for existing workers. U.S. employers added 162,000 jobs in March, the third gain in five months and the most in three years. The unemployment rate held at 9.7 percent, close to a 26-year high.

Lending demand was mixed in most areas, and credit standards were �generally unchanged� across the country, the Fed said.

It's important to note that comparisons to March of 2009 are comparisons against the rock bottom troughs. Still, lending demand was weak as is job data. Is that what is priced in to the S&P 500?

Surely not, so either jobs and lending pick up or this recovery is not much more than inventory replenishment and massive stimulus.

In regards to jobs, here is an interesting discussion on my blog today.

Leo Writes ...

Employers increased payrolls by 162,000 workers last month, the third gain in the last five months and the biggest since March 2007, signaling companies are becoming more confident the economy is healing, Labor Department figures showed April 2. The jobless rate was 9.7 percent in March for a third month.

Translation: let's see; 8,500,000 lost jobs divided by 162,000 jobs 'gained' last month equals 52 months for a 'full' recovery. I wouldn't hold my breath.

My Reply:

Not quite. You are missing the fact that it takes 100K jobs a month to keep up with demographics and expanding population.

To get to the unemployment rate at the start of the recession you need to divide 8,500,000 by 62,000 (assuming a gain of 162,000 jobs a month). That is 137 months!

That assuming of course there is no double dip recession and the economy can really average 162,000 jobs a month.

But wait. It is worse than that because there are about 2.3 million marginally attached and discouraged workers who will be looking for a job and want one.

If 1 million of them come back into the labor force, the math becomes 9,500,000 divided by 62,000 and that is 153 months.

Moreover, that does not even count the number of part-timers who what a full time job.

This is exactly why I do not believe these rosy targets of unemployment rate at 7-8% in a few years.

Thus, Leo is correct: It's not advisable to hold one's breath waiting for a job recovery because the numbers are even worse than they look at first glance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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