Despite Distractions, US Economic Recovery Gains Momentum

Recent distractions with economic uncertainty in Europe have turned many heads, but the strong U.S. economic recovery rolls on.  Just about all new U.S. economic reports are now posting positive results.  This past week was no exception.

A very strong month-to-month surge in new manufacturing orders and additional employment boosts highlighted another robust ISM manufacturing report.  New orders have been rolling in steadily now for well over a quarter and employment is now accelerating a level not seen for almost 6 years.  Other ISM readings included strength for production, backlogs, and export orders.  Additionally all the activity in production is drawing-down inventories – a sign that points to additional necessity for inventory restocking and even further production and employment.

The recent surge in home sales has also carried over to unexpected strength in construction activity. Construction outlays in April have jumped 2.7%, following a 0.4% rebound in March.  Even though economists knew about expiring tax credits for home buyers, the consensus had expected no change for the April reading.  The recent jump in home sales has now cut home inventories enough to give contractors renewed confidence to pick up their pace of additional construction.

Car and truck sales are also proving very solid.  In the latest report, sales are now ramping to an annualized adjusted rate of 11.6 million -- surpassing April's 11.2 million.  The best news for the auto sector is that even now that those government incentives have been curtailed, sales continue to ramp steadily.

The Challenger's job-cut report held its count at a pre-recessionary 38,810 in May.  The level is little changed month to month, but compared to last year's 111,182 in May the rate is now at "normal" levels.  The report supports continued expectations for sizable payroll gains and lowering unemployment rates in the months to come. 

The ISM's non-manufacturing composite also continues to report solid gains. Its readings continue to   indicate steady month-to-month acceleration in activity.  The employment component of the report now shows a net gain in hiring with rising backlogs pointing to accelerated hiring ahead. 

So while short term market fluctuations many times have folks asking if the recovery is over, the reality is all indications are that this recovery cycle (even though it is now about a year old) is likely just getting started.  Fundamentally, most indicators now point to steady economic growth and an increase in hiring for the foreseeable future.