Stocks rose on Wednesday despite the poor manufacturing numbers that fell for April. There was also mediocre news about the European economic recovery.
So, what are business journalists making of the stock market and how to cover such a seemingly large disconnect?
Here’s the Reuters story, via the New York Times:
Factory output dropped in April and manufacturing activity in New York state contracted this month, a sign that slowing global demand is weighing on the economy.
The anemic growth picture was highlighted by another report on Wednesday showing the largest decline in wholesale prices in three years. The data gives the Federal Reserve latitude to keep priming the economy with an easy monetary policy.
“The somewhat sluggish economic growth and limited inflation are the equivalent of rocket fuel for the Fed,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
U.S. Treasury debt prices rose on the reports and the dollar retreated from 4-1/2 year highs against the yen as investors fine-tuned their bets on Fed policy. Stocks on Wall Street trended higher while gold prices fell to their lowest in nearly a month.
Manufacturing production fell 0.4 percent last month after declining 0.3 percent in March, the Fed said. That pushed overall industrial output down by 0.5 percent, more than unwinding March’s 0.3 percent advance. Economists had expected industrial output to fall only 0.2 percent last month.
The drop in factory output, which accounts for more than 70 percent of industrial production, was broad-based and in keeping with data earlier this month that showed factory payrolls failed to expand last month.
Industrial capacity utilization, a measure of how fully the nation’s mines, factories and utilities are deploying their resources, dropped sharply from a more than 4-1/2 year high.
Bloomberg’s coverage cited the Federal Reserve’s stimulus as the reason for the continued rally:
U.S. stocks rose, pushing benchmark indexes to fresh records, as data showing weakness in manufacturing fueled bets the Federal Reserve will be in no hurry to scale back stimulus.
JPMorgan & Chase Co. jumped 1.7 percent to its highest level since June 2007 as financial shares rallied. Procter & Gamble Co. added 1.5 percent as the index tracking consumer-staples stocks hit a record. Macy’s Inc. increased 2.5 percent after reporting profit that beat estimates. Netflix Inc. rose 4 percent, extending gains for a sixth day. Cisco Systems Inc. climbed 8.5 percent after the close of regular trading as quarterly earnings topped analyst forecasts.
The Standard & Poor’s 500 Index (SPX) rose 0.5 percent to 1,658.78 at 4 p.m. in New York. The benchmark equity gauge has set a record in nine of the past 10 sessions. The Dow Jones Industrial Average added 60.44 points, or 0.4 percent, to a record 15,275.69 today. More than 6.5 billion shares traded hands on U.S. exchanges today, or 3.5 percent above the three-month average.
Then there’s the Euro-zone’s lagging recovery. Here’s the Wall Street Journal coverage:
The euro-zone debt crisis has mutated into Europe’s longest slump of the postwar era, as the currency bloc’s economy shrank for the sixth-straight quarter with no recovery in sight for most of the 17 countries.
The euro zone’s output of goods and services, or gross domestic product, fell at an annualized rate of 0.9% in the first three months of this year, data released on Wednesday showed, deepening a recession that began in late 2011.
Depression-like conditions in Southern Europe, combined with slowing global growth, are dragging down the core economies: Germany is barely growing, France is steadily contracting.
The euro zone, which accounts for 17% of world GDP, remains the weakest link in the global economy, mired well below its level of economic activity before the 2008 financial crisis.
Low interest rates and abundant liquidity for banks—and above all, the European Central Bank’s pledge to prevent the collapse of euro-zone government bond markets—have led to strong recoveries in many European financial markets. But borrowing costs for businesses in Spain, Italy and Portugal remain significantly higher than in Northern Europe, impeding investment and job creation.
So, it’s a mixed bag in the U.S. and in Europe with investors betting that the central banks will continue to prop up lagging economies. As many in the world struggle to find full employment, it’s probably a good thing that governments are willing to continue to prop up the economy. It’s just a bonus that some are able to make money while they do it.
