There was a ton of data ahead of Friday's big jobs report.
First, the scoreboard:Dow: 16,558.8 (-21.9, -0.1%) S&P 500: 1,883.6 (-0.2, -0.0%) Nasdaq: 4,127.4, (+12.9, +0.3%) 10-Yr Yield: 2.61%, down from 2.64%
And now the top stories:Personal spending jumped by 0.9% in March, which beat expectations for a 0.6% increase. This was also the fastest pace of growth since August 2009. "March's solid rise in real spending is due to two factors," said Capital Economics' Paul Dales. "One, the unwinding of the weather distortion generated a 1.4% m/m leap in goods spending. Two, the surge in healthcare spending (as the previously uninsured use the new policies provided by the Affordable Care Act) led to a 0.4% m/m rise in services spending." Personal income climbed by 0.5% in March, which was a bit stronger than the 0.4% expected. Because spending outpaced income, the personal saving rate slipped to 3.8% from 4.2%. The saving rate is now at the lowest level since January 2013. But a falling saving rate alone shouldn't be considered a sign that consumers are taking undue risk. "The wealth ratio is rising," noted Renaissance Macro's Neil Dutta. "That is, households are seeing their financial and real estate assets rise faster than income. When that happens, households feel better about the world and draw down their rates of precautionary saving. Just because households are not using their homes to extract equity, they are a bit more comfortable bringing their rates of saving down, especially now that the bulk of household deleveraging is behind us."
The ISM manufacturing index climbed to 54.9 in April from 53.7 in March. It was also better than the 54.3 expected by economists. Seventeen of the 18 industries followed by ISM saw expansion during the period. "Overall, a positive report and, with domestic demand picking up, we expect further increases in the ISM manufacturing index in the months ahead," said Capital Economics' Amna Asaf. "Nonetheless, even at 54.9 in April, the index points to a rebound in annualised GDP growth to more than 2.5% in the second quarter."
Oddly, the bond markets rallied in the wake of the better-than-expected ISM report. Strong economic data is supposed to encourage the Federal Reserve to want to taper quantitative easing and raise rates more aggressively sooner than later, which means higher interest rates. Yet we saw the 10-year Treasury note yield fall from 2.6604% to as low as 2.5934%. Stifel Nicolaus' Dave Lutz noted that there are buyers for Treasuries coming from everywhere. Among other things, Lutz believes that much of the buying is a result of the fact that traders were just too short the Treasury market."CFTC data showed that short positions in 10-year note futures were near four-year highs," he said. A disappointing March construction report had economists across Wall Street hacking their Q1 GDP estimates. "Residential construction was a bright spot, rising 0.7% on the month and standing 15.2% above year-ago levels," noted Barclays' Cooper Howes. "Nonresidential construction fell 0.1%, however, and there were downward revisions to February and January. On the whole, this lowered our GDP tracking estimate three-tenths, to -0.2%."
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