By: Ryan McCarroll
April began with a decidedly negative tone for economic data, highlighted by a weak employment report, a small drop in auto sales, and a weaker than expected Index of Supply Management reading. The employment report in particular has implications for market expectations regarding Federal Reserve policy. The report would appear to remove any speculation that the Fed may begin to curtail its asset purchase program earlier than expected. Indeed, close attention will be paid to second quarter economic activity for indications that the U.S. economy will slip into a third straight spring slow down.
While the employment figures were disappointing, it is more informative to look at recent trends due to volatility in monthly data. Non-farm payrolls increased by 88 thousand during March; however, the six month moving average is 188 thousand. Furthermore, the January and February reports were revised upward by a combined 61 thousand. From a seasonal perspective, an unusually warm winter may have pulled forward some of the employment gains, while an unseasonably cold March may have held back some hiring.
As mentioned above, auto sales in March were down slightly to a seasonally adjusted 15.22 million units. This was a slight decrease from the February figures and below analyst expectations. Despite the small pullback, the Q1 pace is still stronger than many forecasts. According to the automotive research firm Polk, the average age of light passenger vehicles in the U.S. is 11.3 years, much longer than the normal holding period. Pent up demand for new replacement autos is perhaps one of the reasons that the small pull back in sales is not overly concerning.
The next Federal Open Market Committee meeting will be held April 30, where quantitative easing will be discussed. While a one month change in employment data will certainly not be decisive for policy makers, it will no doubt embolden the dovish Fed members to argue for staying the course. This fact was not lost on equity markets; since the March employment figures were released, the S&P 500 index is up 2.5%.