PALM CITYS HORSE TALK: Week In Review..Our Economy

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OVERVIEW ~ for March 29 through April 2, 2010, the stock markets improved while Treasury security yields ended lower. Mortgage rates rose along with Treasury note rates. FOCUS ~ Three reports brought cheer to the markets. 1. This was the week, of course, when the Federal Reserve ceased its purchases of mortgage-backed securities (MBSs), a move that had been awaited with some concern by investors. The Fed has been buying up MBSs so as to make sure there is adequate demand for the huge supply available for purchase. If demand were to decline, yields to investors would rise, very likely taking other interest rates higher as well. However, the markets have had plenty of time to digest the fact that the Fed was going to stop making the purchases. No panic ensued this week, therefore. But no one is certain that private investors can fully take up the slack left by the Fed’s exit from its purchase program. Still, the initial mild reaction calmed the markets. 2. Surveys showed that manufacturing orders and output were improving solidly, not just in America, but throughout the world. The U.S. Manufacturing Index reached its highest level since 2004. Meanwhile, China’s manufacturing sector grew for the thirteenth consecutive month. Exemplary of the positive manufacturing data were signs of growth from auto manufacturers, with General Motors and Honda each announcing a 20% jump in auto sales. The news, especially since it was strong throughout the world, led to a rise among stock markets, as investors acted on a firmer belief in the economic recovery’s strength. 3. The important employment report for March was released Friday, April 2. It showed an addition of 162,000 payroll jobs in our nation. At the same time, the household survey component of the report indicated that the unemployment rate remained where it was at 9.7%, which was understandable since more people are probably looking for employment as a result of job market improvements, and those who are once again seeking employment are treated as additions to the ranks of the unemployed. (When they weren’t actually looking for jobs, they were in a statistical limbo in which they were neither unemployed nor employed.) These numbers suggest that our economy is unlikely to continue shedding jobs, and thus the stock markets reacted favorably. However, though the numbers showed a clear improvement, they simply aren’t high enough yet to force the unemployment rate lower. We need at least 250,000 new jobs each month in order to employ those Americans newly entering the work force.