On March 19, the Federal Reserve announced further tapering of QE3 – another cut of $10 billion effective in April. The market anticipated that, but it didn’t anticipate Janet Yellen’s spontaneous remarks at the central bank’s ensuing press briefing. Asked what the lag time might be between the end of the current Fed stimulus and an increase in the benchmark interest rate, Yellen estimated six months. As the stimulus is projected to end in late 2014, that implied a rate hike as early as spring 2015, and stocks plunged in response. Wall Street quickly recovered, however, and Yellen reassured the markets on March 31, noting that the economy would still require an “extraordinary” commitment to economic stimulus for the near future.2,3
Some very good news emerged on a few fronts. Consumer spending and consumer incomes were both up 0.3% for February, echoing the (revised) January increases earlier reported by the Commerce Department. February also saw retail sales improve 0.3% – the first gain in three months and a nice rebound from the (revised) 0.6% drop in January.4,5
Households didn’t have to contend with much inflation, and for that matter wholesalers didn’t either: February brought only a 0.1% in the headline Consumer Price Index and a 0.1% retreat for the headline Producer Price Index. The CPI was up just 1.1% in a year, the PPI just 0.9%.6 Consumer confidence – as measured by the Conference Board – hit its highest level in six years in March. The CB’s monthly index came in at 82.3, a peak unseen since January 2o08. Consumer sentiment – as measured by the University of Michigan – declined slightly to 80.0 from 81.6 at the end of February. (For the record, the CB survey carries slightly more weight with economists and market analysts.)4,7
Unemployment was at 6.7% in February, which was 0.1% higher than in January but down a full percent from a year before. Non-farm payrolls added 175,000 hires, slightly below the monthly average of 189,000 noted over the past year.8
As the weather warmed, the pace of growth in the factory sector picked up slightly. Overall durable goods orders were up 2.2% in February, and the Institute for Supply Management’s factory PMI rose half a point to 53.7 in March. Early in March, however, word came that ISM’s non-manufacturing PMI had stumbled to 51.6 in February from the January reading of 54.0.9,10,11
