What To Believe

If we believe the Commerce Department, the U.S. economy stalled in the first quarter of this year, scantly growing by 0.1%. Maybe it will be revised upward to a more robust 0.2%? You get the picture.

Yet today, ADP, a private company that reports on private sector employment said that in April, 220,000 new jobs were added. Even more contradictorily, ADP revised its totals for March up to 209,000, an enhancement of about 17,000 extra hires.

Tomorrow's Labor Department report is expected to show around 210,000 new jobs. ADP and the Labor Department use different methodologies to compile their data. The Labor Department also includes public sector jobs, which have been declining for years now.  

Government spending in Q1 '14 fell 0.5%, firming from the fourth quarter's 5.2% decline. Federal government spending bumped up 0.7% - the first increase since Q3 in 2012. Budget cuts eased this year in Washington despite the rhetoric you hear. State and local government spending fell 1.3%, and therein lies some of the discrepancy we see between ADP and the Department of Labor.

But let's call the two sets of numbers "about the same." And they're pretty robust.

Additionally, consumer spending in the first quarter of this year rose at a rate of 3% annualized, down only slightly from Q4 of 2013 (3.3%).

Yet there are some troubling signs in the American, and indeed the world, economy. U.S. exports declined 7.6% because of slower growth in Europe and China (Q1).

Residential building investment dropped 5.7% in Q1; that followed a drop of 7.9% in the fourth quarter of '13.

Perhaps even worse, business investment fell more than 2% and spending on new equipment fell 5.5%.

This may be due to inventories that were beefed up in Q4 of last year, something fairly typical as companies rush to spend money within a certain tax year.

So... getting to the point: What is the Fed seeing to make them so optimistic? In a word, March.

The month was something of a wunderkind, showing swift acceleration in many areas, as seen above. But, but, but...

Think of the data components of the economy as a convoy of ships. Some are fast, some are slow, some are slightly damaged, some are meant to be out in front, etc. Nothing arrives on time exactly.

Many of the stats concerning Q1, and March in particular, were not delivered early enough to us mere mortals. So we see "official numbers" that do not reflect the different reality that the Fed and other insiders see.

Gold is sitting about in the middle of today's range right now. It dipped before the meeting then surged up right to the door of 1300 before slipping back again. The equities rally helped to insure that. Money ran to the sidelines, ran back into gold, then ran over to stocks. Gold bulls were saved by a weak dollar today. (Bond yields dropped as well.) It's sinking in that interest rates aren't rising anytime soon provided the Fed doesn't hiccup in between meetings as it did in March, throwing everyone into a tizzy. Loose lips sink ships.   

Tapering continues apace. The FOMC meeting ends and all is sort of well.

As always, wishing you good trading,