A few encouraging developments

We're still in the midst of the weakest recovery ever, and there's a lot of unease among the population, as evidenced by the surprising strength of the unconventional Trump and Sanders campaigns. The economy only grew by a  miserable 1.4% annualized in the fourth quarter, and some forecasts are saying the first quarter just ended was miserably slow as well. The market complained so loudly about the Fed's plan to raise rates two or three more times this that Janet Yellen had to do a mea culpa and back off, at least for the time being. Decent fiscal policy is what has been lacking, but at this point there's no telling how the elections are going to change the future of policy. Trump seems to be losing momentum and the FBI is hot on Hillary's trail. Sanders is so addled he wants to boost the economy by saddling its more productive members with a mountain of new taxes. Cruz is holding his own for now, but not feeling much love (though he's got my vote, that's for sure).

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.

Industrial commodity prices have jumped since last December, ending a multi-year slump. Perhaps it's because the dollar has stopped rising, and/or because the global economy is picking up a bit on the margin. Either way, it's a welcome positive and should help put deflation fears to rest.

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.)