Every month there are numerous economic reports that come out. For those not trained in economics it can be difficult to determine the relevance of these many pieces of economic data. At the beginning of each month there are reports that are released, which I believe offer particular significance.
The reports that I will highlight include manufacturing and non-manufacturing from the Institute of Supply Management (ISM), monthly auto sales, and the employment report. Certainly there are plenty of other reports that have significance, but focusing on just these should give someone a decent read on how the economy is doing.
The ISM manufacturing report is released on the morning of the first day of the month. The ISM reports are derived from a survey of purchasing managers. Recent months this number had been showing increasing weakness. This deterioration has not been dramatic, but nonetheless was showing some softness in manufacturing.
The number that was reported for February surprised investors in that it showed improvement versus January. The increase was not large, 49.5 versus 48.2 with 50 being considered a neutral level. However, what was most important to market participants is that the report signaled a strong possibility that the recent weakness in manufacturing was coming to an end.
While manufacturing has been declining as a percentage of the economy for many years, it does correlate well with how the economy is doing. The stock market increased over 2% the day the report was released, clearly indicating that investors interpreted the report in a positive manner.
The next report of significance that is released would be monthly auto sales. The auto companies typically release their sales figures throughout the first day of the month.
Auto sales give a good read on how the economy is doing, because for many people it represents a purchase that can be deferred. During the past recession annualized auto sales dropped to a sales figure of about 10 million units.
For February sales were 17.5 million units, the same as for January. This is a very strong number, as annual vehicle sales of 15 to 16 million is considered normal. Some of the strong sales can be attributed to replacement demand and low gasoline prices, but sales of this magnitude indicate consumers are reasonably confident.
The next piece of data is the ISM report for non-manufacturing. This report comes out on the third business day of the month. This report covers the whole services side of the economy, which is significantly larger than manufacturing, though not as volatile.
The reading for this report was 53.4, virtually identical to the January figure of 53.5. With a reading over 50 it signifies that the economy is still expanding, certainly not at a high level, but enough to signify moderate growth.
The last report, which tends to receive the most press, is the monthly employment report, usually released the first Friday of the month. The figure for January showed an increase of 242,000 jobs with the national unemployment rate holding steady at 4.9%.
This was an improvement from the January figure of 172,000 jobs created, and the average for the past three months was in excess of 200,000. While wage growth still remains fairly lackluster, this level of job growth certainly signifies an expanding economy.
Early this year with the stock market declining, recession fears were starting to mount. However, this latest batch of economic data show the likelihood of a recession in the near term becoming increasingly unlikely. As of Friday March 4, the stock market has recovered most of its losses for the year, confirming that the economic outlook has improved.
Economic data can certainly jump around on a monthly basis, and there will certainly be months when the reports are less favorable. However, for now it appears that the economy will continue on the path we have seen in recent years, of slow to moderate growth.