Economic Week in Review

ECRI Weekly Leading Index 133.70 unch.

The Institute for Supply Management's Factory Index held close to a 20-yr. high at 61.4, as more factories said they were hiring to meet demand. The ISM employment gauge rose to its highest level since 1987. Moreover, this was the 4th straight month the index stayed above 60, the longest stretch since 83-84. The breadth of the improvement was impressive as all 20 manufacturing industries reported growth.

The Institute for Supply Management's Service Index came in at a very strong 60.8, down from its all-time high reading of 65.7 the month before. As well, the Intl. Council of Shopping Centers predicted sales of U.S. retailers rose 7% last month, the most in almost 4 years as tax refunds are boosting incomes by over $70B the first 6 months of the year.

The final Non-farm Productivity reading was 2.6%, growing at the slowest pace in a year. Fed Governor Bernanke said he expected companies to increase hiring soon as productivity gains slow. As well, first-time claims for unemployment insurance fell to 345k last week, near a three-year low. The Index of Aggregate Hours Worked per Week rose last month at the fastest pace in almost 8 years, as companies tried to keep up with demand. Finally, the Temporary Help Services Index has risen 10% in the last 10 months, the best showing since 1999 and a leading indicator of employment growth.

The unemployment rate met expectations and held steady at 5.6% for the month of February. However, the Change in Non-farm Payrolls was a much weaker-than-expected 21K. This number resulted in a significant rally in the Bond market and a modest decline in the U.S. dollar. Trading in interest rates futures now indicates that investors don't expect the Fed to raise the benchmark overnight bank lending rate from 1%, the lowest since 1958, until December at the earliest.

BOTTOM LINE: The vast majority of the data released last week point to continued strong economic growth with a pick-up in hiring in the next few months. Inflation remains subdued as well. The Personal Consumption Expenditure Price Index, the Fed's favorite gauge of inflation, rose a scant .3% last month even with record-high energy prices. In my opinion, the more momentum the economy builds before the first Fed rate hike, the better. Companies will find it increasingly more difficult to meet rapidly rising demand with their current labor force. Employment growth has always been a lagging indicator. Investors and pundits focused on this one number are looking in the rear-view mirror of the economic automobile. Those looking out the front window see improvement in the near future.