The Guest Blog

Crescenzi: Torque Present in U.S. Economy

Torque dictates movement, and there is torque present in the U.S. economy at the moment, with force building toward increases in employment.

This was seen today in the New York Fed’s Empire manufacturing survey, where the survey’s unfilled-orders component reached its highest level since June 2006 in early March (chart 1), leading the survey’s employment component to its highest level since October 2007 (chart 2).

Chart 1: Unfilled orders component of New York Empire survey:

Chart 2: Employment component of New York Empire Survey

Source: Federal Reserve Bank of New York

Torque present elsewhere in the U.S. economy is evident in numerous data:

1) Non-farm productivity: Best 3-quarter gain in 51 years, indicating a stretched workforce

2) Temporary employment: 5-month gain of 276k workers, or 16.5%, the fastest pace ever

3) Delivery speeds are slowing within the ISM index

4) The business inventory-to-sales ratio is a hair away from its all-time low, set in January 2006.

These cyclical tailwinds are culminating following a year’s worth of positive influence from improving data on the value of risk assets.

If as it looks likely, this torque leads to employment gains, gains in risk assets will of course be reinforced.

In this second phase, more serious expectations for an old-normal styled economic recovery will be entertained. It will take several months of employment gains to convince large numbers of market participants, but these months of gains do not seem far away anymore. Structural challenges will of course remain, and these will be seen once the cyclical rebound ebbs.

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Tony Crescenzi

Tony Crescenzi is Senior VP, Strategist, Portfolio Manager Pimco. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."