So it seems a bit odd that the stock market has staged a big comeback in the past few months. Could there be something positive brewing beneath the economy's surface? Only time will tell, but I can point to several encouraging developments of late.
The March ISM report was stronger than expected, although still in weak territory. As the chart above suggests, the improvement in the manufacturing sector portends a pickup in first quarter GDP growth, which could come in at 2 - 2 ½%, or about the same as we've seen over the past 6-7 years.
The economy has been pretty resilient of late, and jobs continue to grow at just over a 2% annualized rate. Add to that the miserably weak productivity that the economy has suffered from for the past 5 years, and you get real growth of 2 - 2 ½%, which confirms the message of the ISM index. In other words, the economy's central growth tendency hasn't changed over the past several years.
The past few months have seen an uptick in both the growth of the labor force and the labor force participation rate (see charts above). The labor force participation rate has now been flat for the past two years, a welcome respite from the almost unprecedented declines we saw over the previous five years. People are re-entering the workforce. Perhaps because they are getting hungry for some extra income, or because they are somewhat more confident they can find a job. Either way, more people working and looking for work means the economy retains its inherent dynamism, and that is what has helped it weather the Eurozone, China, and oil patch slowdowns.
Stronger commodity prices have brought a sigh of relief to emerging market economies. Brazil in particular has seen a rather dramatic surge in its stock market and in its currency in recent months, as the chart above shows. There are some encouraging political developments as well that are percolating in Latin American economies today: Brazil may get new, non-corrupt leadership, and Argentina's new president is straight out of central casting. (A friend spotted Macri on a commercial flight out of Buenos Aires just the other day, and tells me he has decommissioned the government's aircraft fleet to help reinforce his message of cutting costs and setting a conservative fiscal course.)