A March jobs pickup doesn't change the outlook for modest growth

ADP's estimate of private sector jobs growth in March (+191K) was a good deal stronger than January's (121K), but as the chart above shows, it does little if anything to change the fact that for the past several years, job gains have been averaging about 200K per month. That's not enough jobs to move the real GDP needle above a 2-3% range.

If there is anything positive occurring on the margin that is also noteworthy, it is the decline of the Vix index (a proxy for the market's level of fear and uncertainty), which jumped to 21 in early February and is now down to 13, and the rise of 10-yr Treasury yields (a proxy for the market's confidence in the economy's growth prospects), which have risen over 20 bps since the end of February. (I note that 5-yr TIPS real yields are up a more impressive 35 bps since the end of February, and that is arguably a more direct reflection of the market's perception of the economy's strength, although at -.4% real yields remain miserably low.) The chart above shows the ratio of the Vix index and the 10-yr Treasury yield, and the recent decline could be interpreted to mean that the market has become less fearful of the future and somewhat more confident in the ability of the economy to continue growing at a modest rate.

So we're still stuck in a modest-growth rut, so to speak, but at least—from the market's perspective—there don't appear to be any existential threats out there which could throw the economy off track. And as I've said many times in the past year or so, in the absence of recession it pays to own risk assets, especially when the alternative (e.g., cash yielding zero) offers something of value only to those who are convinced that there is a lot of bad news waiting around the next corner.

The ongoing rise in equity prices is being driven mainly by a rise in PE multiples and a decline in risk aversion, as the market gradually narrows the gap between equity yields (which have fallen from a high of 7.7% in mid-2012 to 5.7%) and risk-free 10-yr Treasury yields (which have risen from a low of 1.5% in mid-2012 to 2.8%). That gap can be seen in the chart above. The gap is still quite large, though, which leaves plenty of room for the market to "melt up" before valuations become disturbingly stretched.

Car sales still strong

With warmer weather, March light vehicle sales bounced back stronger than expected (16.33M vs. 15.80M), marking a new post-recession high and up 81% from their recession lows. This has been the most dramatic recovery in auto sales in modern times. I note that total employment today is still about 500K shy of its pre-recession high, but auto sales are now back to pre-recession levels. It's been the worst recovery ever, but it's nevertheless a recovery in many ways.

Residential construction spending boom

I still run into people who refuse to believe there has been a housing recovery, and there are even those who doubt whether there's been any recovery at all in the economy. All I can say is, the numbers tell a compellingly different story. As the chart above shows, residential construction spending has increased by almost 50% in the three years ending last February. And with warmer weather we're likely to see even further gains in the months to come. If a 50% increase in activity in the span of three years doesn't count as a recovery, I don't know what does. Of course, there is still a lot of room to go before residential construction spending reaches a new high, but that doesn't change the fact that, on the margin, there has been a really impressive turnaround in residential construction spending in the past few years.

Nonresidential construction has only posted modest gains in recent years (up 15% from the early-2011 lows), but it didn't decline nearly as much as residential.