Dollars and Sense: Jobs picture improves as recovery plods along

Earnings season winds down. First-quarter earnings season began with lowered expectations, proceeded with better-than-expected performance, and ended with analysts saying that might have been good enough to sustain current prices. Bob Doll, at Nuveen, said last week the stock markets hanging on at near record highs was a sign of underlying strength in the economy, even though earnings have been weak. He said that reflected a fair amount of optimism earnings will pick up by the end of the year. (For a moment we’ll forget Fed Chair Janet Yellen said last week the markets were “quite high,” suggesting they were over-valued and calling many to remember Alan Greenspan’s “irrational exuberance” comment from the late 1990s.)

Mergers and acquisitions continue. The continued merger and acquisition activity and an ongoing stream of initial public offerings gives one sign of economic health. Charter Communications is in talks with Time Warner Cable, according to The Wall Street Journal. The restaurant chain Bojangles had its IPO last week, pretty big news in Charlotte, N.C., where I’m from and where Bojangles is headquartered. But more to the point: It is a sign the public markets have become a good source of capital for “main street” companies and not just technology high-flyers.

Trade deficit balloons. The government announced the March trade deficit was at a six-year high. In fact, the trade deficit was so large—more than $51 billion—that it far outstripped projections the government used to estimate first-quarter gross domestic product growth. Some analysts now think that growth, just 0.2 percent, could end up being erased in future revisions to the GDP number.

Europe improves. The manufacturing sector in the eurozone expanded in April, and negotiations between Greece and its European creditors are making progress. We’ve seen a bit of a flight of capital from the rest of the world into what had been a deflated european stock market, and the European Central Bank announced a few months ago it would engage in a quantitative easing program. Both developments provided fuel to the European stock markets. That said, Greece and Spain still have huge unemployment issues. Europe still has a lot of problems, though the big win for Britain's David Cameron and his conservative party last week may be an indication Europeans are turning away from statist solutions and toward more free-market solutions.

Employment also improves. The big news last week was the unemployment number announced on Friday. The unemployment rate fell to 5.4 percent as the economy added 223,000 new jobs. In a separate report, we learned new claims for unemployment fell to the lowest level in 15 years. The labor force participation rate remains low, around 63 percent, but it’s likely this report is good enough to convince most traders and analysts the recovery continues, though at a slow rate.

The week ahead. It will be a pretty normal week for economic reports, and by that I mean we’ll get four or five every day. I mention that because it highlights the importance of being careful what you pay attention to. You can usually find data somewhere in the 20 to 30 government reports released each week to support just about any position you want to hold. So it pays to focus on the much smaller number of reports that indicate broadly where the economy is going. We’ll get a couple of those this week. On Wednesday, we’ll get the retail sales number. Since retail drives about 70 percent of all economic activity in this country, that’s a key report. And the producer price index report on Thursday, though less important, helps us understand where inflation may be headed. I’ll also have an eye on Greece: The beleaguered country managed to make a small payment to the International Monetary Fund on Wednesday, but it must make a much larger 777 million euro payment to the IMF tomorrow. It's not clear it will be able to do that. A Greek debt default could set off a chain reaction with consequences extending far beyond Europe.

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