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VOL. 129 | NO. 49 | Wednesday, March 12, 2014

Mark Sorgenfrei

Examining Numbers From Data Week

By Mark Sorgenfrei Jr.

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The first week of the month always produces a torrent of economic data that is capped off by the Friday employment report from the Department of Labor. Here is a summary of the more relevant data releases from last week:

Institute for Supply Management (ISM) Reports: Remembering that any reading above 50 signifies expansion, the ISM manufacturing index for February moved to 53.2, up from January’s 51.3 reading. For all of 2013, the index averaged 53.9, so the U.S. manufacturing sector is bringing the momentum of 2013 forward into 2014. February’s ISM non-manufacturing index (service industries) registered at 51.6, still in expansion territory, albeit at a more moderate pace.

Jobs: Friday’s nonfarm payroll report was anticipated with uncertainty because of the bitterly cold weather that blanketed the country during February. Partly because of this weather effect, economists had lowered their forecasts for job gains. A median forecast of economists in a Bloomberg survey predicted 149,000 jobs to be added. February’s job gains exceeded that median forecast with a payroll increase of 175,000 jobs. Furthermore, the December and January initial estimates were revised up. Good news that job gains were better than expected. The bad news is that December, January and February have produced average monthly job gains of 129,000, which are markedly down from the 205,000 monthly pace from the previous 11 months (January through November of 2013). The unemployment rate ticked up to 6.7 percent, while the labor force participation rate held steady at an anemic 63 percent.

Household Net Worth: Perhaps the most encouraging report last week was the Q4 2013 Federal Reserve Household Net Worth Report. Total net worth in the United States increased to a record $80.7 trillion at the end of last year, well above the pre-recession 2007 high of $76.6 trillion. Financial wealth in isolation registered at $66.9 trillion (thank you, bull market, that saw its beginning five years ago this month!), representing a 23 percent increase above the pre-recession high of $54.3 trillion. The liability side of American balance sheet continues to drastically improve, as total U.S. household debt was 109 percent of disposable income, compared to a peak level of 135 percent in 2007. Balance sheet repair on both sides translated into a $9.8 trillion overall household net worth increase for the full 2013 year, a jump of nearly 14 percent, and the fourth highest percent increase since 1945. As more investors recognize that their personal financial recovery has crystallized, confidence could continue to push higher.

Equity markets reacted favorably to data week (and muted tensions in the Ukraine), as the S&P 500 once again broke thru to record highs. Interest rates moved rapidly higher as well, as the 10-year Treasury reached 2.79 percent, nearly 5 percent higher than the 2.66 percent reading at the end of last week.

Bottom Line: Last week’s economic data revealed a manufacturing and service sectors that continue to expand alongside a gradually improving labor market. Household net worth is as high as it has ever been, as Americans have witnessed improvements on both sides of their personal balance sheets.

Sources: Bloomberg, The Wall Street Journal, Reuters, Yahoo Finance, Marketfield Asset Management

Mark Sorgenfrei Jr. is vice president and investment analyst for Waddell & Associates Inc.

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PROPERTY SALES 56 308 6,247
MORTGAGES 58 345 7,437
BUILDING PERMITS 244 800 13,391
BANKRUPTCIES 49 202 4,549

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