Today was quite the day for economic data, with two key releases from the Bureau of Economic Analysis (BEA) and Bureau of Labor Statistics (BLS).  We’ll start with BEA data on personal income and spending in March.

First, as shown below, the savings rate surged in the month, with households saving 27.6% of personal income net of taxes.  That’s a huge number, even by the standards of the elevated savings rates that we’ve seen over the course of the pandemic.

The reason there was so much saving going on is that transfer payments rose by more than $300bn on the month, driven by the delivery of economic impact payments also known as “stimulus checks” or even shorter: “stimmies.”

Incomes also rose thanks to rebounding labor market activity following winter storms in Texas during February and the longer-term trend of reopening across the economy.  As shown, the 13.5% annualized growth of wage and salary income in the month was very strong.  It was also helped along by wage growth, which we will discuss later on.

With spending surging thanks to stimulus checks and other factors, core personal consumption expenditure prices surged by the most MoM since 2009, over 4% annualized.  The 4% move was in no small part due to the swing in activity from February to March, and isn’t likely to be sustained, but it is a helpful indicator that prices may be more robust in this recovery than they were during the low inflation post-GFC period.

For broad inflation that will concern the Fed, one factor that will be needed along with steadily rising prices is strong wage growth.  The second big report today was Q1 wages in the BLS Employment Cost Index (ECI).  The ECI does a better job of measuring wage growth than other series because it accounts for changes in the composition of employment over time.  As shown in the chart below, Q3 saw the strongest sequential wage growth on record, with a 4.6% annualized advance in wages versus Q4.  Some of that came from incentive-paid occupations, which benefit from bonuses and related payments, skewing the results.  As shown in the chart, though, there was very strong wage growth even excluding incentive-paid occupations.  Anecdotal reports of very tight labor markets amidst booming reopening demand got support from this release.  Click here to view Bespoke’s premium membership options for our best research available.

The S&P 500 has traded in the tightest range between its weekly high and low (1.02%) since the last week of 2020’s under 1% range.  Even though there has been a tight range, the S&P 500 is up 40 bps over the past five days through yesterday’s close, and in the process, it has pinged up to record highs multiple times on an intraday basis this week.  Regardless, the lack of any distinguished push in either direction has sent some jitters among individual investors.  The percentage of respondents to the AAII sentiment survey reporting as bullish fell 10.1 percentage points week over week to 42.6%.  That is the lowest reading in bullish sentiment since the first week of March and was the largest one-week drop since the week of November 19th when it fell 11.5 percentage points.

There are a handful of comparable periods in the history of the survey that bullish sentiment has fallen at least 10 percentage points from a reading above 50% while the S&P 500 traded higher over that same week.  In the table below, we show the 16 past times this has happened without another occurrence in the prior 6 months.  As shown, this most recent instance marks one of the smaller changes in bullish sentiment of these and is also one of the few periods that the S&P 500 was not higher by at least 0.5% in the week leading up to these moves in sentiment.

Overall, these types of moves have not been positives for forward performance of the S&P 500; particularly in the near term.  Short-term returns are typically weak with average declines one week, one month, and three months out.  We would note that while the average one-week return is negative, the S&P has actually been higher over the next week the last seven times dating back to 2003.  Six and twelve months later have more often been met with positive returns. In fact, the vast majority of instances over the past two decades have resulted in the S&P 500 higher over those time frames.  But on an average and median basis, those returns have been smaller than the norm.

The losses to bullish sentiment were shared nearly equally between bearish and neutral sentiment.  Bearish sentiment rose 5.2 percentage points to 25.7% which is the highest reading since mid-February.  That was also the biggest one-week uptick in market pessimism since September.

The combined moves in bullish and bearish sentiment meant the bull-bear spread dropped by 15.3 points to 16.9.  While that is only the lowest level in the spread since the first week of March, it was the biggest one-week decline since last June.

Neutral sentiment picked up the difference rising by five percentage points. Similar to the bull-bear spread and bullish sentiment, that is highest reading since early March. Click here to view Bespoke’s premium membership options for our best research available.

Over the past few weeks, initial jobless claims have seen a significant improvement falling to pandemic lows in the 500K range.  Even with last week’s reading getting revised up by 19K to 566K and this week’s print missing expectations coming in 3K above estimates of 550K, the picture of the US labor market broadly remains positive.  This week marked the first streak of three sequential weekly declines since November. At 553K, claims are also at the lowest level since the first half of March of last year and are below the peaks of past recessions.

Including the other major unemployment insurance program, the Pandemic Unemployment Assistance Program (PUA), the picture is the same.  Non-seasonally adjusted claims between the regular state programs and PUA claims are at a new low on a combined basis dropping below 700K for the first time. Regular state claims have consistently accounted for a majority of initial claims and that has increasingly been the case over the past few months.  PUA claims dropped 11.6K week over week to a new low of 121.75K which only accounts for roughly 17.5% of all initial claims.  That compares to an average of 32.23% since the program first began to be tracked last year.

In spite of the pace of new claims entering the system having slowed recently, continuing jobless claims data has plateaued.  Last week, we noted how a revision had brought back to life a record streak of consecutive sequential declines in continuing jobless. This week that streak once again looks like it has come to an end as continuing claims rose 9K to 3.66 million.  Although that streak is over (barring any revisions down the road), it is in the context of a massive and rapid improvement in claims in a relatively short span of time.  For starters, in the 50 weeks since the high in claims last May, there have only been seven weeks including the current one in which claims did not experience an improvement. Additionally, since falling below the 6.635 million level that had marked the pre-pandemic record high in claims from the Global Financial Crisis, claims have dropped another nearly 3 million in just under 6 months.  By comparison, after the GFC peak, it took 128 months or over two and a half years for claims to move from that peak to a similar level as to now.

Including all programs adds some lag to the data meaning the most recent data is for the week of April 9th.  Continuing claims across all programs fell 846K to 16.587 million. That is the second-lowest reading of the pandemic behind the first week of the year’s 16.05 million reading, although that week comes with the caveat of some irregularities on account of the timing of the signing of the spending bill. Essentially every program saw lower claims counts with the biggest drop coming from Pandemic Emergency Unemployment Compensation (PEUC) which fell by over 400K.  Since the fall, this program as well as others that extend benefits beyond normal expiration have accounted for an increased share of total claims meaning a growing number of the unemployed have been facing long-term unemployment. Over the past several weeks, though, this reading has also been improving.  Click here to view Bespoke’s premium membership options for our best research available.