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A self-Sustaining Recovery?

"Adversity causes some men to break; others to break records." ~ William Arthur Ward


A self-sustaining recovery?

March came in like a lamb; at least as far as U.S. economists were concerned. Although turmoil in the Middle East and northern Africa have forced Americans to pay more for gas at the pump, at least temporarily, this week's data seemed to reflect an economy on the mend.


More Americans head back to work

Confounding expectations of another increase, the unemployment rate dropped 0.1% in February to 8.9%, its lowest level since April 2009. Private-sector payrolls grew by 222,000 (public-sector payrolls fell slightly), and figures for December and January were revised upward as well, for a three-month average of 136,000 new jobs. Gains were posted in most job sectors, including professional services and the construction industry, though retailers shed about 8,000 jobs. Although the data were encouraging, analysts noted that the jobless rate remains dispiritingly high and anything resembling "full employment" is still a few years away, at best.


An early spring for the service sector

The ISM also had good news for the service sector. Its non-manufacturing index inched up a few fractions of a point in February to 59.7, the highest level in nearly six years. Buried in the data were signs that many businesses are poised to expand in coming months, portending further strengthening in the job market.


Construction spending down slightly

Spending on construction projects slipped slightly in January, dropping 0.7% to $791.8 billion. Private residential construction was up considerably, however, posting a 5.3% gain from December, for a total of $245.6 billion. Among the sectors reporting declines were power and utility (-11.8%), health care facilities (-9.7%), and factories (-2.7%). Overall, construction spending was down 5.9% from January 2010. Analysts found little reason to expect a major rebound in the near future, with federal stimulus funds drying up and few signs of a turnaround in the beleaguered housing market.


Higher earnings, but no spending spree

Americans earned more in January, but they saved more, too. Thanks in large part to a reduction in Social Security taxes, personal income jumped 1.0%, but consumers seemed inclined to hold on to the extra money, with the savings rate rising almost half a percentage point, to 5.8%, and consumer spending virtually flat. Inflation remained largely under control in January, as consumer prices rose just 0.1% when ever-volatile food and energy costs are factored out.


The economic week ahead

Economists will spend the coming week sorting through fresh data on consumer credit (due Monday), international trade (Thursday), and retail sales and business inventories (both on Friday).




Markets Update

For the week ended March 4, the S&P 500 Index rose 0.1% to 1,321 (for a year-to-date total return-including price change plus dividends-of about 5.5%). The yield of the 10-year U.S. Treasury note rose 7 basis points to 3.49% (for a year-to-date increase of 19 basis points).


(Source: Vanguard, CNBC.com, CNNMoney.com, ustreas.gov, bls.gov, 03/07/11)