5/8/2015
By Jennifer Coombs

In a rather dramatic conclusion to the first full week of May, the U.S. equity markets rose higher after a rebound in overall hiring during the month of April led to a boost in optimism that economic growth is picking up pace. However, it’s not so dramatic that the Federal Reserve will be likely to raise interest rates in June. In April, total nonfarm payrolls increased by 223,000 and bounced back from a dramatically downwardly revised 85,000 (from 126,000) jobs added in March. This ultimately resulted in the unemployment rate dropping to 5.4% from 5.5% and is currently at the lowest level since May 2008. This is actually a reasonable decline since the participation rate increased by 10 basis points as well to 62.8%. Nevertheless, it is unusual how positively the market is reacting to this data since it merely points out the jobs situation is just “satisfactory.” The massive decline in jobs-added for March is likely the culprit behind the dismal gross domestic product (GDP) growth for Q1-2015. Today’s data merely suggests that Q2 is better than Q1 so far, but it’s nothing to get excited about.

For the month of March, wholesale sector inventories showed a slow build while sales continued to decline. Inventories in the sector increased by 0.1% while sales declined for the 8^th consecutive month, by 0.2%. This booted the inventory-to-sales ratio to 1.30, up from 1.24 at the end of Q4-2014 and 1.20 from the end of Q3-2014. Inventories of metals and heavy machinery, where sales had been slowing in recent months, looked quite heavy relative to demand. Sales have picked up in chemicals while at the same time inventories have declined. Automobile inventories were unchanged from March, but are still quite heavy relative to the sales trend for this time of year. Today’s employment report noted that wholesale payrolls declined by 5,000 jobs in April, which is one of the few contractions for this reading of the whole recovery and reflects a long 8-month dismal streak for wholesale sales. Since wholesale inventories remain quite heavy, this ultimately signals weakness in the retail sector.

Jennifer Coombs
Wall Street Strategies

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