The United States is catching up with the global recovery.
Following a report Friday showing the U.S. labour market is healing, more data this week indicate the rebound from the worst recession since the 1930s is gaining traction.
U.S. services companies, which represent almost 90 per cent of the world's largest economy, expanded the most in more than three years in March. Pending home sales, meanwhile, jumped 8.2 per cent in February, the biggest increase since October, 2001.
The interpretation was clear. Oil prices extended a rally by jumping 2 per cent, North American equity markets rose and bond prices fell - all telltale signs that investors are betting on recovery. The 10-year U.S. Treasury bond yield touched 4 per cent, a level not reached since June, as upward pressure mounts on interest rates.
The latest U.S. economic readings bode well for the global economy, which began the year dependent on China and other big emerging markets for growth.
Countries such as Australia, Canada and Germany benefited from surprisingly strong Asian and Latin American demand for manufactured goods and commodities. But their prospects always were limited by the U.S.'s struggles to escape a recession that began at the end of 2007.
Monday's data, coupled with the Labour Department report on Friday that showed that the U.S. posted the biggest monthly jobs gain in three years in March, suggest American consumers are regaining confidence. In a sign of what that means for the rest of the world, the Canadian dollar and Mexican peso extended gains that had already made them the strongest-performing major currencies this year, as investors calculated that the U.S. neighbours in North America would benefit from stronger demand from their largest trading partner.
"There is diminishing risk for a double-dip," said Sal Guatieri, a Toronto-based economist who follows the U.S. for BMO Nesbitt Burns, referring to fears that American economic growth could crumble once government stimulus fades. The recent U.S. data "tell us the recovery is spreading to more sectors, which means it is more durable," Mr. Guatieri said.
The Tempe, Ariz.-based Institute for Supply Management's index of non-manufacturing companies rose to 55.4, the highest level since May, 2006, from 53 the prior month. A reading of more than 50 signals expansion, while a figure of less than 50 suggests services companies contracted.
Economists cheered the report because it suggested that recent strength in U.S. manufacturing is spreading to the rest of the economy.
The National Association of Realtors' index of signed purchase agreements, or pending home sales, posted its second-biggest increase in records that go back to January, 2001. The index is considered a leading indictor because it predicts the sales that occur a couple of months hence. Housing is considered key to U.S. consumer confidence because so many homeowners are now living in assets that are worth less than their purchase price. Before consumers resume spending in earnest, they must restore much of the wealth they lost during the financial crisis. Increased demand for houses will help that process by raising prices.
Even more important than housing is the labour market. Monday's trading represented many investors' first opportunity to react to last week's survey by the Labour Department, which showed that 162,000 people found work in March. It was the third jobs gain since November with more than 75 per cent of the hiring in March done by private sector employers, a signal that business owners are gaining confidence in the recovery.
The jobless rate remained at 9.7 per cent and the average length of unemployment rose to more than 31 weeks, the longest since record keeping began in 1948. Nevertheless, the Obama administration, which has faced criticism for its failure to reverse the unemployment rate, predicted on the weekend that the U.S. economy was at a turning point.
"Now the process of job creation has started, we expect it will accelerate," Lawrence Summers, director of President Barack Obama's National Economic Council, said in an interview on ABC's This Week program on Sunday, according to an account by Bloomberg.
Investors appeared to agree.
The Standard & Poor's 500 index rose 0.8 per cent to 1,187.44 in New York, the biggest gain in a month and the highest close since September, 2008. The S&P/TSX composite index climbed 0.3 per cent in Toronto, extending last week's increase to an 18-month high.
Crude oil for May delivery climbed $1.74 (U.S.) or 2.1 per cent to $86.61 at the close of trading in New York, the highest in 17 months. The yield on 10-year U.S. Treasury bonds touched 4 per cent for the first time since June, as buyers demanded returns equivalent to what could be made by purchasing stocks.
To be sure, the U.S. rebound likely will be held back by the debts consumers ran up prior to the recession and the burden the government has taken on to reverse the crisis. Mr. Guatieri predicts the U.S. economy will expand about 3 per cent this year, compared with growth of 4 to 5 per cent after previous recessions.
But for now, investors appear satisfied with growing evidence that the recession really is over.
The National Bureau of Economic Research will eventually decide when that occurs, and the NBER appears to be leaning toward calling it now.
"I personally put lots of emphasis on employment," Robert Hall, who heads the NBER's Business Cycle Dating Committee, told Bloomberg in an interview over the weekend. "I would say 'pretty clear' is a good description" for whether the economic contraction has ended, he said.