Despite a short week, markets still digested a robust slate of economic data from both the manufacturing and services sectors. The activity culminated in a blowout March U.S. employment report on Friday, which came out while most financial markets were closed for Good Friday.

The week also marked the end of the first quarter on Wednesday. As the recovery continued in the first quarter, it also continued to expand. Groups that lagged in 2020 led during the first three months of this year, including commodities. As far as stocks, small and mid-cap names outperformed larger companies, and value indexes generally exceeded the returns of growth portfolios.

Aided by $2.8 trillion of cumulative government stimulus year-to-date, there will likely be more positive economic data coming down the pike this spring. The Atlanta Fed’s GDPNow model is currently estimating 6 percent real U.S. GDP growth in the first quarter, up from a final reading of 4.3 percent in the fourth quarter of 2020. Earnings season is also around the corner, and Refinitiv has estimated aggregate profit in the S&P 500 will grow by 24 percent year-over-year.

Another measure on the rise is long-term U.S. Treasury yields. The 10-year note is currently at 1.72 percent after ending 2020 at just 0.92 percent. One reason for this is the prospect of a post-pandemic economic recovery, although signs of future inflationary pressures are also increasing at the producer level.

Even though consumer prices are expected to follow suit later this year, the Federal Reserve remains committed to keeping short-term interest rates at or near 0 until there is a full recovery of the domestic labor market. That’s something Chair Jerome Powell and Treasury Secretary Janet Yellen maintain will likely take another year or two.

With an accommodative Fed and the support of government stimulus programs, we believe the U.S. economy can continue to post solid growth in the coming months, while increased vaccine distribution allows for more aspects of society to emerge from the COVID-19 pandemic.

WALL STREET WRAP

March Employment Data Upside Surprise: The Bureau of Labor Statistics announced on Friday that the U.S. economy added 916,000 non-farm payrolls in March. That figure handily exceeded expectations, and the figure from February was also revised higher by 89,000. In addition, the headline unemployment rate improved to 6 percent. Elsewhere, the participation rate increased to 61.5 percent, as 347,000 workers re-entered the labor force last month.

The hard-hit Leisure and Hospitality sector continues to lead the latest round of the jobs recovery and accounted for 280,000 of the gains in March. With the U.S. now averaging 3 million vaccine doses daily, we believe the services side of the economy can continue to rebound in the spring and summer months. Even with the solid gains last month, there are still more than 8 million jobs lost during the COVID-19 pandemic that have yet to be recovered and about 4 million other workers that fell out of the labor force.

Consumer Confidence Jump: Increased vaccine distribution and the latest round of government stimulus were two reasons cited for the sharp rise in consumer confidence reported by The Conference Board on Tuesday. The reading came in at 109.7 for February, which was the highest since the pandemic began and marked the largest monthly increase in almost 18 years. The survey showed that both the current outlook and future expectations for business conditions and the job market were almost equally strong.

ISM Manufacturing Highest in 38 Years: On Thursday, the Institute of Supply Management (ISM) said that its manufacturing index increased to 64.7 in March, which was the highest reading since 1983. Of the 18 industries tracked in the survey, 17 reported growth last month, and demand for new orders drove backlog to the highest level in 28 years. It’s also worth noting that in March the prices paid index ticked slightly lower from the previous month.

Infrastructure Bill Announced: President Biden unveiled plans on Wednesday for an eight-year, $2.25 trillion infrastructure bill as his next strategy to help the U.S. economy recover from the COVID-19 pandemic. While the headlines evoke images of roads and other public works, this proposal also included funds for clean energy projects and improving care for the elderly and disabled.

The strategy is intended to create jobs in the U.S., although there is certain to be a lengthy debate about the various projects included, as well as the proposed corporate tax increase that is meant to help fund the spending.

THE WEEK AHEAD

Services Side of ISM on Deck: Following robust manufacturing data last week, the ISM will post the March non-manufacturing index on Monday.

FOMC Minutes Due Midweek: Wednesday offers a look at the minutes from the most recent FOMC meeting. This report often contains some key insights that cannot be gleaned from a dot plot.

PPI Expected to Keep Climbing: On Friday, the Bureau of Labor Statistics will announce the producer price index (PPI) for March. Expectations for both the headline number and core reading (excluding food and energy) are for businesses to have seen signs of inflationary pressure continue rising from February levels.

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