I expect April's nonfarms payroll report to be vastly improved over March's weather-affected results, but it won't hide the fact that not all is well in the U.S. economy.
"It's more related to innovation than the economy," V.F. Corp. (VFC) CEO Eric Wiseman told me on Friday afternoon. Fresh off another improving quarter of jeans sales in the U.S., which had been under pressure for most of last year as consumers favored yoga pants, Wiseman chose to pin the strengthening performance on the release of new products rather than a sizable tick up in the economy's health. V.F. Corp's Lee and Wrangler brands sell right into the heart of Middle America, often found on the racks of Macy's (M) and Wal-Mart (WMT). Certainly, one would have thought that armed with gas savings and a minimum wage hike, common U.S. households had the financial power, and mindset, to purchase several pairs of Wrangler jeans instead of a single pair. Alas, that didn't seem to be the case in the first quarter.
Then there is Newell Rubbermaid (NWL) and Coca-Cola (KO), two companies that also peddle seemingly affordable products to U.S. consumers. Rubbermaid CEO Michael Polk chalked up the company's solid first-quarter showing to pricing power on new products. Meanwhile, Coca-Cola CEO Muhtar Kent struck a non-committal tone on the health of the U.S. economy just days before Warren Buffett, a big Coca-Cola shareholder, voiced his typical upbeat view on the resilience of the economy at Berkshire Hathaway's (BRK.A, BRK.B) annual meeting over the weekend. "I would say that the (U.S.) outlook appears to be trending a little positive, raising hopes that potential ways growth and lower fuel prices could translate into consumer spending," said Kent on Coca-Cola's first-quarter earnings call.
As for what is causing this downbeat commentary, which I don't believe is all related to execs trying to temper Wall Street's expectations and then beat them three months later, it's truly anyone's guess. The April employment report due this Friday should be noticeably better than March's dismal reading, as weather has turned improved. Jobless claims at are 15-year lows. And, according to data from research firm Challenger Gray & Christmas, employment for 16 to 19 year olds is at the highest non-summer level since 2009. That suggests local businesses and larger corporations are relying on a consumer spending spree and economic re-acceleration this spring and summer.
But something still feels off, and the lingering effects of the recession (as seen in the latest round of earnings) are going to wreak havoc on how Federal Reserve Chair Janet Yellen implements policy directives into year's end. For example, the recovery has created some 700,000 mid-wage jobs and about 2 million low-wage jobs. During the recession, roughly 3.8 million mid-wage jobs were lost, while 1.4 million low wage jobs disappeared. So, yes, the recovery continues to offer up structural impediments to unlocking stronger growth, namely, tame rises in pre-tax income. Such impediments are being met with big-name companies beginning to raise prices on daily necessities (they are now willing to forego some volume), suggesting mid- to low-income America will continue to have to make difficult choices when venturing down the shopping aisles at Walmart or Target (TGT). Rough.
Chart of the Day: Dow Transports
Continuing with the narrative of something being awry in the economy, the U.S. dollar plumbed two-month lows against the euro Friday. But the Dow Jones Transportation Average continues to underperform the Dow Jones Industrial Average and S&P 500. Dollar weakness thus far in the second quarter should be making Wall Street more hopeful that guidance ranges at multinationals are eclipsed come July. All sorts of multinationals have assumed negative effects on net income because of currency volatility. The fact that transports haven't perked up is a little bothersome.
Source: Yahoo! Finance