Speaking of the employment picture, 280k new jobs showed up in May. Ah, but the unemployment rate ticked up to 5.5%, from 5.4% in April. Yeah, but the labor force participation rate ticked up a tenth of a point as well. Which is precisely why the unemployment rate (which only counts folks looking for work) ticked up. Which means---yes it does!---that some discouraged folks peaked out their parents' basement windows and saw enough going on that they now believe they have a legitimate shot at a job.
Oh!, almost forgot: Often when I reference the unemployment rate, I get a smirky "that's not the true unemployment rate!" Then I get schooled on U6 unemployment, which includes folks who work part-time but want full-time work, and those not in the labor force who'd take a job if one was offered. The U6 unemployment rate sits at 10.8%. And, yes, that's a number to keep an eye on. But, you know, that 10.8% is a far cry from the 17.2% rate it hit in April 2010.
And then there's that wage argument; "they're not going up", say the naysayers. Well, think about it: We have a recession---lots of folks become unemployed. Things begin to look up---lots of folks need a job and will take what they can get. I.e., no pressure on companies to raise wages to attract workers. The economy accelerates, more companies hire, leaving fewer unemployed folks---and now companies have to compete for the few qualified ones remaining. Meaning wages begin rising as the expansion rolls on. And, yes, that's what's going on. Friday's jobs report saw gains in hourly wages and hours worked both exceeding economists' expectations. Plus, Thursday's report on productivity and the Employment Cost Index for Q1 both show noticeably rising labor costs. Right on schedule, I dare say...
Now, all that said, I'm certainly not complaining about certain folks complaining about the economy. For worry is a wonderful thing when it comes to the stock market. I.e., bull markets tend not to peak (they do correct, however) amid pessimism. Stocks---like other asset classes (remember those gold parties back when the metal was $1,900 an ounce, and your neighbor's home equity-financed boat, jet skis and European vacation back in the mid 00s?)---tend to peak amid mass euphoria. Are you feeling euphoric about the economy?
Moving on to this week's message:
So if the economy's so good, why is the stock market barely positive on the year? If you've been reading, and listening to, my stuff, you know that, in my view, an accelerating economy is a short-term headwind for the stock market. Because it gives the Fed the justification to raise the Fed funds rate, which is currently targeted at 0% to 0.25%. This is the rate one bank pays another for the short-term borrowing of reserves. The Fed can effectively influence market lending rates by influencing (through the manipulating of banks' liquidity) the rates lenders pay when they borrow on their own behalf. I.e., banks pass their cost of money onto their borrowers.
The Fed raises interest rates when they believe the economy has the potential to heat up the point where inflation heats up. By essentially tapping the breaks the Fed hopes to keep inflation (above, supposedly, a target rate) at bay without slamming the economy back into recession. The Fed lowers rates when the economy shrinks in hopes of stimulating enough borrowing and spending to get things back on track.
As I said, currently the rate they manipulate the most is at zero. Thus, make no mistake, they are itching to get it higher as soon as they can. For they know how difficult their jobs would be if the economy were to peak with the Fed funds rate still at, or close to, zero!
The argument I subscribe to has been that---beyond what might become the long-awaited 10+% correction---the improving economy is good news for stock market investors. As it'll be increasing sales that'll have to provide the boost to a rate of earnings growth that'll offset the negative effects (on stock valuations) of higher interest rates. Of course a little investment in productivity-enhancing technology---which the evidence suggests is about to pick up---won't hurt either.
The action last week---broken down by sectors---supports my argument (although we won't get too excited about one week's action). In that, amid a down week for the overall market (Dow down 0.99%, S&P 500 down 0.69%)---when the economically defensive sectors (healthcare, staples and utilities) all posted losses---a number of the cyclical sectors (financials, discretionary, homebuilders and transportation) actually gained. I.e., if a bear market-inducing recession were close at hand, cyclical stocks would be getting hammered, while, you'd think, defensives would outperform. Here are the numbers (5-day returns):
Consumer Staples: -2.46%
Consumer Discretionary: +0.29%
*Last week I featured these three as sectors I'm currently feeling good about...
This week we'll take a quick look at the prospects for the defensive sectors:
Healthcare, staples and utilities are considered economically defensive simply because even when resources are thin, folks find a way to get what they need to stay fed, healthy and warm (or cool, as the case may be). I mean, when folks aren't in the mood to buy cars and computers, Kraft still sells truckloads of Mac n' Cheese. And you'll take the aspirin when needed and pay the utility bill come hell or high water. Therefore, these defensive sectors are where you want your money when the economy's not producing.
Healthcare: Much to my surprise, healthcare has been the top performing U.S. sector year-to-date. Which doesn't exactly jibe with my thinking that the economy's picking up and, therefore, cyclicals are where we want to be. The thing is, there's been a surge in consolidation (companies buying one another) among healthcare companies, which is bullish. And biothechs---despite their high valuations---have been on fire this year.
It'll be interesting to see how this sector performs going forward. If the economy indeed begins (or continues) to accelerate, and merger activity---along with biotechs---begins to cool, I wouldn't be surprised to see it lag the cyclicals (as it did last week) as the year progresses.
Despite my pessimism, and what to me are relatively expensive valuations, we've maintained roughly 7-10% exposure to healthcare in most portfolios. And, for now, that's where we're sticking.
Staples: Like I said above, when things look bleak, you still gotta eat. But, as I've been reporting, things aren't bleak and, therefore, staples are in the minus column on a year-to-date basis. Plus, like healthcare, they sport a price-to-earnings-to-earnings-growth ratio (PEG) that forces me to color the sector red on my valuation spreadsheet.
Despite the above, we remain around 7-10% exposed to staples in most portfolios. Diversification is key to long-term success, and I think it's prudent to always play a little defense. While I can monitor, study and chart till I'm blue in the face, I understand that the next recession/bear market could sneak in when I least expect.
Utilities: Yes, you gotta keep the lights on, but you don't gotta own utilities' stocks when interest rates are rising. This is one, in my view, to completely avoid. Folks generally buy utilities for their high dividends, plus they tend to be heavy borrowers themselves. That's a double-whammy for their stocks: I.e., investors sell utilities stocks when rates rise and other income options begin to compete---and the companies' earnings get squeezed as their borrowing costs rise.
Next week we'll delve into the prospects for the non-U.S. portion of your portfolio.
The Stock Market:
Non-US markets have measurably outperformed the U.S. (save for the NASDAQ Composite Index) year-to-date. Don’t be surprised if that remains the story throughout most of the year---given many foreign markets' cheaper valuations, early-stage recoveries and, yes, accommodative central banks. That said, there are a number of potential international hot buttons that could easily delay the narrowing of the gap between the valuations of U.S. and non-U.S. securities. That’s why we think long-term and stay diversified!
Here’s a look at the year-to-date results (according to Morningstar) for the major U.S. indices. And (according to ETFdb.com) the results for non-U.S. indices and U.S. sectors---using index ETFs as our non-U.S. and sector proxies:
Dow Jones Industrials: +1.25%
S&P 500: +2.56%
NASDAQ Comp: +7.56%
EFA (Europe, Australia and Far East): +7.87%
FEZ (Eurozone): +5.38%
VWO (Emerging Markets): +3.70%
IYH (HEATHCARE): +9.73%
XLY (DISCRETIONARY): +6.41%
XHB (HOMEBUILDERS): +5.80%
XLK (TECH): +4.29%
XLB (MATERIALS): +3.33%
XLF (FINANCIALS): +0.61%
XLI (INDUSTRIALS): -0.82%
XLE (ENERGY): -1.22%
XLP (CONS STAPLES): -1.26%
IYT (TRANSP): -6.48%
XLU (UTILITIES): -8.82%
The Bond Market:
As I type, the yield on the 10-year treasury bond sits at 2.41%. Which is a substantial 29 basis points higher than where it was when I penned last week's update.
TLT, an ETF that tracks an index of long-dated U.S. treasury bonds, saw its share price decline a whopping 4.16% last week (down 6.61% year-to-date). Clearly, the long end of the bond market sees the economy improving and interest rates rising going forward.
As I keep repeating, I see bonds in general sporting a risk/return trade-off that makes going out on the yield curve not worth the risk.
Once again, here's the reminder on volatility I posted earlier in the year:
In last weekend’s commentary I attempted to put a rough January into proper perspective by urging you to view the stock market as an “antifragile” (benefits from stress) entity. Again, periodic market downturns are an essential aspect of the long-term investing process. As I stated in our year-end letter, and several commentaries since, I expect financial markets in 2015 to exhibit the kind of volatility that will challenge the resolve of many a short-term investor. Good thing you and I think long-term!
One additional note on volatility: The past couple of weeks I’ve shared with you the very short-term results for markets and sectors. I do this with a bit of hesitation, as I in no way want to give the impression that you, nor I for that matter, should base our long-term investment decisions on short-term movements in markets or their sectors. It can, however, serve as a reference point for how the markets are, or are not, responding to the data (which is why I, as a professional, track the short-term). As you may have noticed, my beginning of the year optimism over non-US and the housing sector (to name two), and pessimism over utilities, appears to be justified by recent results. I need to strongly (very strongly!) emphasize that I was not predicting what we’ve experienced these few short weeks into 2015. My optimism or concerns are based on factors such as valuations, trends, monetary policy and cyclicality—and my comfort in making allocation recommendations rests on the view that our clients are not short-minded investors (it can take awhile, if at all, for the market to reward what I believe to be good fundamental logic) who mistakenly believe that any human being possesses a capacity for market timing. Some people get lucky from time to time, but without exception, market timers are wrong far more often than they are right. The path to long-term investment success is fraught with bumps and potholes. The ones who successfully make the journey take it slow and never over-compensate when steering through and around the inevitable obstacles along the way.
Here are last week’s U.S. economic highlights:
JUNE 1, 2015
CORE PCE (Personal Consumption Expenditures) rose by a meager 1.2%. This is big for Fed watchers (who believe the Fed should not raise rates this year), as it's the Fed's preferred inflation measure.
PERSONAL INCOME rose .4% in April, which is a good reading. However, wages were less good at .2%... Rents and dividends made a real positive contribution.
CONSUMER SPENDING came in flat in April.
MARKIT'S MANUFACTURING PMI for May shows continuing growth in the sector, at 54.0. New business volumes, however, increased at the slowest pace since early 2014. A decline in new export sales speaks to the impact of the strong dollar. Oil and gas was a headwind for the index as well. Payroll numbers rose at a solid pace---fastest in 6 months.
ISM MANUFACTURING INDEX for May came in with a positive 52.8, up from 51.5 in April. New orders came in with their highest reading of the year. Employment and backlog orders were positive contributors as well. Deliveries were little changed.
CONSTRUCTION SPENDING shot higher in April, up 2.2%. Which is way above the consensus estimate of .7%. Both single and multi-family homes saw strong gains---another data point that confirms my optimism over housing going forward. Private non-residential spending was very stong as well, up 3.1%. Public spending, from state and local governments, gained as well.
JUNE 2, 2015
AUTO SALES FOR MAY came in huge, up 14.2 million (annualized) for the U.S. and up 17.8 million total. This is above the top-end of economists' forecasts. Very positive economic sign!
THE GALLUP US ECONOMIC CONFINDENCE INDEX FOR MAY shows confidence declining, to -7 vs -3 in April. While the consumer sentiment ratings have been noisy of late, this one tells a negative story of the consumers' attitudes toward the economy going forward. Here's Econoday:
May economic confidence index declined to an average of minus 7, down from minus 3 in April. This drop continues the monthly downward drift since confidence peaked at plus 3 in January and is the lowest monthly score since the minus 8 in November 2014. However, confidence remains much higher now than what Gallup has found in most months since Americans started to feel the recession's effects in 2008.
In January, the index averaged plus 3, the first time since the recession that it had a positive monthly average. This higher confidence was most likely related to a drop in gasoline prices across the U.S. However, the index began deteriorating after that and has had negative monthly averages since March, including May's average of minus 7.
The ECI is the average of two components: Americans' ratings of current economic conditions and whether they feel the economy is improving or getting worse. Both components dropped between April and May, continuing the downward slide, but expectations about the economy's direction are clearly suffering the most so far this year. The economic outlook component score was minus 10 in May, based on 43 percent of Americans saying the economy is getting better and 53 percent saying it is getting worse. The outlook score was down five points from the minus 5 found in April, and is the lowest monthly economic outlook score in Gallup Daily tracking since October. By contrast, the current conditions score in May was minus 4, based on 25 percent of Americans saying the economy is "excellent" or "good" and 29 percent calling it "poor." The May current conditions score is the lowest since December.
THE JOHNSON REDBOOK RETAIL REPORT continues to show subpar results, at 1.7% year-over-year growth vs 1.6% the previous week.
THE ICSC RETAIL REPORT shows annual retail sales growing by 2.1% year-over-year. Like Redbook's report, this one is now showing retail activity moving at a slower than expansionary pace.
FACTORY ORDERS FOR APRIL did not suggest that the U.S. economy is anywhere near off to the races. New orders, shipments and unfilled orders were all down, while inventories were up. Ex defense and transportation, new orders rose a bit. One component that speaks positively about the economy's forward prospects was capital goods. Here's from the report:
Capital Goods. Nondefense new orders for capital goods in April increased $0.3 billion or 0.3 percent to $81.2 billion. Shipments increased $1.3 billion or 1.6 percent to $80.2 billion. Unfilled orders increased $1.1 billion or 0.1 percent to $763.3 billion. Inventories increased $0.3 billion or 0.2 percent to $177.4 billion. Defense new orders for capital goods in April decreased $0.9 billion or 9.5 percent to $8.4 billion. Shipments decreased $0.3 billion or 2.8 percent to $9.5 billion. Unfilled orders decreased $1.0 billion or 0.7 percent to $151.4 billion. Inventories increased $0.5 billion or 2.5 percent to $21.7 billion.
JUNE 3, 2015
NEW PURCHASE MORTGAGE APPS declined 3% last week. Even though the weekly numbers are most volatile, I'm a bit (truly "a bit" given higher mortgage rates) surprised. The year-over-year increase, however, is a robust 14%. What doesn't surprise me is the falloff in refis, down 7.6%. I suspect that the vast majority of legitimate refinances have been completed---at lower rates---at this point.
THE ADP EMPLOYMENT REPORT for May came in barely above expectations at 201k.
THE TRADE DEFICIT contracted to -40.9 billion in April, from -51.4 billion in March, which will be a positive for Q2 GDP. This reflects the back-to-normalness for the West Coast ports (after a spike in imports in April [after the strike was resolved]). Exports rose a bit, suggesting some calming of dollar-related concerns and perhaps an increase in foreign demand.
THE GALLUP U.S. JOB CREATION INDEX ticked up to a new high of 32. Here's Econoday:
Gallup's U.S. Job Creation Index reached a new high of plus 32 in May, up from plus 31 in April. In the government sector, perceived job creation ticked up to a new high. Nationally, workers' improved perceptions of hiring activity in their workplaces are a good sign for the economy as summer begins. The positive trend on job creation matches other reports of low unemployment that Gallup and the U.S. Bureau of Labor Statistics have found. However, there have also been several negative economic news items. Gallup's measure of Americans' economic confidence in May, and consumer spending was flat, but was down from prior highs. Altogether, the economy appears to show a mixture of good signs and bad signs. However, this new high in perceived job creation is a good sign for U.S. employment.
Within the government sector, the Job Creation Index score reached a new high of plus 25 in May. This is up from plus 22 in April and the previous high of plus 23 in August 2014. Despite the uptick in government job creation last month, perceptions of hiring among nongovernment workers have consistently been stronger than those of government workers since 2009. The index averaged plus 33 among nongovernment workers in May, consistent with the high found in April.
MARKIT SERVICES PMI FOR MAY shows the sector remains firmly in expansion mode, however with less momentum than this year's prior readings. The report expresses concern over the reduced momentum and its potential impact on monetary policy going forward. The second and third of the three key points---referenced in the report---below speak to my view that the risk remains to the upside for the U.S. economy going forward:
- Business activity and new work rise at weaker rates in May
- Services payroll numbers rise at fastest rate since June 2014
- Year-ahead business optimism picks up further from March’s recent low
THE ISM NON-MANUFACTURING SURVEY, like Markit's PMI, came in solidly in expansion mode but showing momentum slowing a bit from the April reading. 55.7 vs 57.8. The employment component, while still strong, wasn't as compelling as Markit's read. Here's Econoday:
The ISM non-manufacturing index for May, at 55.7, came in solid but at the low end of Econoday expectations to indicate the slowest rate of monthly growth since April last year. Key readings all slowed slightly but are still very constructive with new orders at 57.9 and business activity at 59.5. Employment also slowed, down 1.4 points to 55.3 which is still a respectable rate.
Other details include a jump in exports, up 6.5 points to 55.0 in a reading that underscores this morning's big service-sector surplus in the April trade report. Supplier delivery times, which had been slowing all year, were unchanged in May suggesting, also like this morning's trade report, that supply-chain distortions tied to the first-quarter port strike have unwound. Input prices, likely tied to higher fuel costs, show some pressure, up 5.8 points to a 55.9 reading that's the highest since August last year.
A look at individual industries shows special strength for arts/entertainment/recreation and management & support services, the latter one of the strongest export industries for the nation. And in the latest hint of strength in the housing sector, both real estate and construction show strength. The only one of 18 industries to contract in the month was, once again, mining which is being hurt by low commodity prices.
The dip in employment won't be boosting expectations for Friday's employment report and the hawks at the Fed are certain to take note of the rise in prices. But in sum, this report is mostly positive and in line with the PMI services index released earlier this morning, both pointing to modest deceleration in what is otherwise the economy's central strength – the service sector.
THE EIA PETROLEUM STATUS REPORT shows a CRUDE OIL inventory draw for the 5th consecutive week, down 1.9 million barrels. I'm still in the camp that sees oil retreating again before it establishes a legitimate bottom. GASOLINE inventories declined .3 million barrels, DISTILLATES bucked the recent trend with inventories rising by 3.9 mbs.
THE FED'S BEIGE BOOK, per Econoday's summary below, paints a relatively stable current picture of the U.S. economy:
The second to last risk for a June rate hike has passed as the Beige Book, prepared by the Fed for its June 16-17 policy meeting, downgrades the strength of the economy slightly. Four of the Fed's 12 districts are reporting slowing growth from the prior Beige Book, especially Dallas which is being hit hard by the energy sector.
Nevertheless, total employment is up slightly as are wages, but only slightly. Retail sales are also up as are residential and commercial construction. Manufacturing is described as steady with the exception, again, of Dallas and also Kansas City. The service sector is described as growing.
The pace of the nation's economy is somewhere between moderate and modest with no signs of over heating. The only chance left now for a rate hike at the June meeting is Friday's employment report which would not only have to show huge gains for May but also major upward revisions for April. The economy is not getting the big second-quarter boost that the hawks expected.
JUNE 4, 2015
THE CHALLENGER JOB-CUT REPORT shows the lay off count at 41,034 in May vs April's 61,582. This supports other data showing a much-improved job market of late.
WEEKLY JOBLESS CLAIMS continue to paint a very positive picture of the present state of the U.S. economy. At 276k last week. The 4-week average came in at 274.75k, while continuing claims were down 30k to 2.196 million. The continuing claims 4-week average dropped 9k to 2.214 million. The unemployment rate for insured workers dropped 1/10th to a very low 1.6%.
LABOR PRODUCTIVITY took a big hit in Q1, down 3.1%. Unit labor costs grew a strong 6.7%. Clearly, as the labor market tightens, wages, etc., are on the rise. Output declined 1.6% as hours worked rose 1.6%. Compensation jumped 3.3%. Year-over-year, productivity is up a paltry .3%. Q2 should look better. A change in the recent negative trend is essential to keeping inflation at bay and to the financial markets going forward.
THE BLOOMBERG CONSUMER COMFORT INDEX declined to 40.5 last week as gas prices have risen and wage growth, according to the survey, hasn't. With regard to both, I expect oil to come off of recent highs and strongly expect, as today's productivity read signals, stronger wage growth going forward. Here's the release:
Consumer Comfort in U.S. Falls to Lowest Level Since November
By Victoria Stilwell
(Bloomberg) -- Consumer confidence in the U.S. slipped last week to a six-month low as views of the buying climate softened, indicating a re-acceleration in household spending may be slow to materialize.
The Bloomberg Consumer Comfort Index fell to 40.5 in the seven days ended May 31 from 40.9 in the prior week. It marked the eighth straight week of declines, the longest such period since the survey began in 1985, after the index reached an almost eight-year high in April.
“In short: It’s a serious sell-off,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement. “Weakened views of the buying climate bear the brunt of the blame for the index’s recent troubles.”
Sentiment has retreated in recent months as consumers pay more at the gas pump and weak wage growth makes households less enthusiastic about their finances. Employment opportunities and further gains in the housing and stock markets may help underpin spending.
The confidence survey’s buying climate gauge, which measures whether now is a good time to purchase goods and services, fell to 34.2, the lowest level since mid-November, from 35.5. The index of personal finances decreased to a three-month low of 54.4 last week from 54.9.
The measure of Americans’ views on the current state of the economy climbed for the first time in eight weeks, rising to 32.9 from 32.3 in the prior period.
Higher gasoline prices may be one reason attitudes on the buying climate have soured. While cheap fuel helped boost sentiment earlier this year, confidence began to erode after costs picked up in February.
The average price of a gallon of regular gasoline was $2.76 as of June 3, the highest since Dec. 1, according to U.S. motoring group AAA. That compares with a more than five-year low of $2.03 seen in January.
At the same time, speculation that the Federal Reserve is discussing when to raise interest rates may also be creating uncertainty with regard to the buying climate. Fed Chair Janet Yellen and her colleagues have said they need to see further improvement in the labor market and to be reasonably certain that inflation will move back up toward the central bank’s 2 percent goal before raising rates.
Sentiment fell in four of seven income brackets, led by a decline in the attitudes among those earning $100,000 or more. Households in that group saw confidence decline to the lowest level since September. Confidence improved the most for the poorest households in the survey -- those making less than $15,000. Their sentiment levels climbed by the most since the end of April.
“The index is at recent lows among several generally better-off groups, bringing it relatively closer to its level among their counterparts,” Langer said in a statement.
The confidence index for blacks posted its best showing since late February, rising to 43.9 last week, while it declined to a more than six-month low of 40.8 for whites. In available data since 1990, the confidence measure has run 11.5 points higher among whites than blacks, Langer said.
On a regional basis, confidence declined in every area except the South, where it climbed by the most in eight weeks. In the Northeast, it plunged to the lowest level since November.
NATURAL GAS INVENTORIES rose by 132 bcf last week.
THE FED BALANCE SHEET rose $1.4 billion last week, after dropping $16.4 billion the week before. RESERVE BANK CREDIT decreased $11.3 billion, after decreasing $5 billion the week before.
M2 MONEY SUPPLY rose by $19.2 billion last week after increasing by $28.5 billion the week before.
JUNE 5, 2015
THE BLS EMPLOYMENT SITUATION REPORT confirms what I'm seeing in the surveys (particularly from the service sector), up 280k, which was substantially ahead of economists' estimates. Here's Econoday's commentary:
The hawks definitely have some ammunition for the June 16-17 FOMC meeting as the May employment report proved very strong including payroll growth and, very importantly, an uptick in wage pressures. Non-farm payrolls rose 280,000, well above the Econoday consensus for 220,000 and near the top-end forecast of 289,000. Revisions added a net 32,000 to the two prior months.
Average hourly earnings came in at the high end of expectations, up 1 tenth to plus 0.3 percent. Year-on-year earnings are up 2.3 percent, a rate only matched twice during the recovery, the last time back in October 2013. Pressure here will be the focus of the hawks' arguments.
Another sign of strength includes the labor participation rate, up 1 tenth to 62.9 percent. The unemployment rate did tick 1 tenth higher to 5.5 percent which is unexpected but the gain reflects a solid gain in the labor force for both those who found a job and especially those who are now looking for a job.
Private payrolls are up 262,000 vs expectations for 215,000 and also near the high-end forecast. By industry, professional business services once again leads the list, up 63,000 following a 66,000 gain in April. Within this industry, the closely watched temporary help services sub-component is up 20,000 after two prior gains of 16,000. The rise in temporary hiring points to permanent hiring in the months ahead. Trade & transportation is up 50,000 followed by retail trade at a solid 31,000. Construction is up 17,000 but follows a 35,000 surge in April. Manufacturing, where exports are hurting, continues to lag, up only 7,000. And mining, which is being clobbered by contraction in the energy sector, is down 17,000 to extend a long run of declines.
Today's results probably aren't enough to raise expectations for a rate hike at this month's FOMC but will be enough to raise talk for a hike at the September meeting. The approach of a rate hike is a wildcard for the financial markets, likely raising volatility including for the Treasury market where turbulence has been very heavy the last month.
CONSUMER CREDIT strongly suggests that folks, despite spotty results from the sentiment surveys, are feeling pretty darn good about their situations these days. Econoday's summary tells the story:
Consumer borrowing is showing very solid life, up $20.5 billion in April following an upward revised gain of $21.3 billion in March. The key for this report is a second big gain in revolving credit which is the component where credit cards are tracked. This component rose $8.6 billion following March's gain of $4.9 billion. These are unusually strong gains for this reading and point squarely at rising consumer confidence. Nonrevolving credit rose $11.9 billion in the month reflecting vehicle financing and another rise in student loans.