• The ISM indexes diverged in February, with manufacturing improving and services falling on the month. However, both remain well in expansionary territory. Vehicle sales, meanwhile, fell 5.7% to 15.7 million (SAAR) units.
  • U.S. job growth picked up steam in February, with payrolls rising by a better-than-expected 379k. Gains were concentrated in the leisure and hospitality sector. The unemployment rate fell slightly from 6.3% in the month prior to 6.2%.
  • President Biden’s $1.9 trillion stimulus package cleared hurdles toward passage this week. The added stimulus will boost economic growth but could also lead to more inflation. The Fed expects inflation’s rise above target to be transient.

Financial News - This Week in the Markets



Coming Out of the Winter Lull

Financial News- Economy Added Better-then-expected 37pk Jobs in February

The first week of March offered a rich buffet of economic data. While it was not all positive, overall it indicated that the U.S. economy continued to come out of its winter lull. The ISM indexes diverged in February, with manufacturing improving and services falling on the month. However, at levels of 60.8 and 55.3 respectively, both indexes remain well in expansionary territory (above the 50-point threshold). Vehicle sales, on the other hand, fell 5.7% to 15.7 million units in February – a reading that was on par with expectations. Severe winter storms that left many Texans without power, among other things, likely played a role in the pullback by reducing foot traffic to dealerships.

Unfavorable weather conditions, however, did not prevent the hiring pace in the U.S. economy from accelerating last month. In fact, payrolls rose by 379k in February, a better outturn than expected (Chart 1). Data revisions also added 38k jobs to the two months prior. Gains in February were concentrated in the leisure and hospitality sector (+355k), which appears to have benefited from eased COVID-related restrictions. The unemployment rate, meanwhile, fell slightly from 6.3% in the month prior to 6.2%.

Improvements in public health conditions build the case for a stronger economic rebound in the months ahead as the economy reopens further. COVID-19 cases have flatlined at around 65k per day recently. Vaccinations, on the other hand, continue at a brisk pace, averaging two million per day. The recent approval of the Johnson & Johnson (J&J) vaccine should be another shot in the arm for vaccinations, given that it requires only one dose and can be stored more easily than the vaccines currently in use. With firm commitments from Pfizer-BioNTech, Moderna and now J&J, President Biden has stated that vaccines should be available to every adult American by the end of May, sooner than initially anticipated.
Financial News- ISM Price Indexes Point to Rising Inflation

The likely approval of the $1.9 trillion stimulus package in the days ahead will be an added boon to the economy. Having passed the House, the American Rescue Plan Act is now being debated in the Senate. Some changes have taken place in recent days. For instance, President Biden has agreed to stricter income-eligibility limits for the $1,400 stimulus checks, which means that fewer Americans will receive direct payments this round. The bill could see some more tweaking. The goal is to have it on the President’s desk before the enhanced jobless benefits expire in mid-March.

The added stimulus will hasten the economic recovery, with growth expected to accelerate to nearly 6% this year. This level of activity will be accompanied by stronger inflation and higher bond yields. Price pressures have been on the rise in recent months, a message also echoed by the ISM price subindexes (Chart 2). Long-term Treasury yields, meanwhile, continued to climb higher this week, with the 10-year rate sitting at 1.57% as at the time of writing. The Fed is aware that inflation could rise above the 2% target. But, as reiterated by Fed Chair Powell yesterday, it expects this to be ‘transient’. As such, the Fed appears poised to remain patient in keeping monetary policy accommodative for some time (for more, see our Dollars & Sense publication).

Admir Kolaj, Economist | 416-944-6318

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