market commentary

Some food for thought has been presented to the economic bulls, namely that the economy, which has firmed up some this quarter, has yet to strengthen to the degree expected a few weeks ago.

Yesterday’s data was on the cool side, with both retail sales and the PPI a bit below expectations. Those data virtually confirmed the Fed will be on hold next week. But today’s Consumer Price Index was hot enough to persuade the Fed to raise in December.

The consumer got back into the game in April, after having sat on the sidelines in the first quarter. In all, shoppers were sufficiently aggressive to lift retail sales 1.3% last month, as buyers flocked to auto showrooms, furniture shops, appliance stores, and clothing retailers. They also spent heavily on the Internet.

The labor market continues to improve, only not at the pace likely needed to accelerate the economic upturn. This point was driven home recently by the report of a lackluster 160,000 increase in jobs in April—a rather disappointing result that was 20% below the consensus forecast and nearly 30% less than the average gain per month over the past year.

This year is starting to look a lot like its two predecessors, with a succession of roadblocks thrown in the economy’s path early in the year followed by some irregular gains as the spring progresses. To wit, we now are seeing some selective recovery in manufacturing, additional gains in nonmanufacturing, and a shrinkage in our still-massive global trade deficit.