The stock market is back in rally mode today, thanks to a pair of U.S. economic statistics that seem to have soothed investor anxiety over the state of business conditions south of the border.
Both the weekly jobless claims and revised first-quarter GDP figures came in just a tad on the weak side, but the numbers had a 'bad news is good news' interpretation by the markets. Hence, the Dow Jones industrial average is up nearly a half per cent in early trading and other indexes are following suit.
With the growth numbers lacklustre, it isn't likely that the Fed is going to tighten monetary policy precipitously, or so the thinking goes. Meanwhile, the data show the U.S. plodding along in a steady, if not unspectacular fashion. In the past, investors have called this the Goldilocks scenario, with the economy advancing at a pace that isn't either too hot or too cold to derail the stock market.
The revised figure of U.S.growth in the first quarter was trimmed to 2.4 per cent from 2.5 per cent, a modest drop due to a larger contraction in U.S. government spending that was first estimated.
The economists at RBC Financial Group believe growth will pick up later in the year, enough to make the Fed tweak policy, but not do anything rash.
"As the fiscal drag runs its course, growth is likely to strengthen over the second half of the year, though the pace is likely to be insufficient to put significant downward pressure on the unemployment rate. While the Fed will take the acceleration in the pace of growth as encouraging, with the unemployment rate still running one percentage point above their target, no change in the Fed funds rate is likely in 2013. Instead, the strengthening in the pace of economic growth is likely to result in the Fed tapering the pace of securities purchases late in the year," RBC said in a note to clients.
Meanwhile, weekly U.S. first time jobless claims, a measure of new layoffs, increased by 10,000 to 354,000.
The figure probably suggests another so-so employment report for May, probably the most important monthly economic release in the U.S., due next Friday.The consensus is for non-farm payrolls to rise 163,000, not much change from the 165,000 increase in April.