Central Bank Rescue Overshadows Bullish Economic Data

Much of the credit for Wednesday’s 400-point surge on the Dow belongs to the Federal  Reserve’s emergency liquidity actions, but don’t let the central bank actions drown out a slew of new bullish economic reports that were almost universally positive.

On the heels of Tuesday’s surprise surge in consumer confidence, new data showed the best estimated private-sector job growth in 11 months, the strongest jump in pending home sales in a year and a key manufacturing index returning to April levels.

While these reports don’t minimize the need for Europe to solve its crisis before it infects the global financial system, they do seem to further soothe concerns about the U.S. economy.

“In the U.S., there is a sense of relief that the economy is doing much better than the perceptions in August” when fears about a double-dip recession swirled, said Russell Price, senior economist at Ameriprise.

Jobs Picture Improves

That sense of relief helps explain the 12.5% rally in the S&P 500 since sinking to 2011 lows on October 3. Better feelings about the economy also helped send economically-sensitive assets such as shares of Caterpillar (NYSE:CAT) and copper futures soaring on Wednesday.

“The U.S. economy looks like it has a little bit more momentum in the second half than it did in the first half,” said Josh Feinman, global chief economist at Deutsche Bank’s DB Advisors. “Admittedly, it’s not an incredibly high hurdle to get over.”

Concerns about the jobs market likely receded as ADP said U.S. private-sector payrolls soared by 206,000 jobs in November -- blowing away forecasts for a rise of just 130,000 jobs and good for the largest increase since December. ADP also said small businesses added 110,000 jobs, marking the biggest boost to this closely-watched area since November 2006.

While this report has a mixed track record of predicting the more important government jobs report, which is set to be released on Friday, it does match up with recent downtrends in weekly unemployment claims. Also, outplacement firm Challenger, Gray & Christmas said planned job cuts declined 13% last month from the year before.

Housing, Manufacturing Surprises

The reports come at an important time as lower concerns about job security could help drive consumer spending during the crucial holiday-shopping season, which got off to a bullish start this past weekend. According to the National Retail Federation, the average holiday shopper shelled out $398.62 over Black Friday weekend, up 9.1% year-over-year.

Wall Street even received further signs of life from the economy’s biggest problem area over the past four years: the housing market. The National Association of Realtors said pending home sales climbed 10.4% in October, beating estimates of a 1.5% rise and marking the biggest increase in 12 months.

Even though the housing picture still remains cloudy, it has shown improvement. Price said housing has positively impacted overall gross domestic product over the last two quarters for the first time since 2005.

In a potentially positive sign ahead of the Institute of Supply Management’s Thursday manufacturing report, new data showed manufacturing activity in the Midwest grew to 62.6 in November -- the best level since April. However, the report showed a decline in its employment index.

The flurry of recent upbeat economic reports, especially in the labor markets, appear to have Americans a bit less jittery about the economy. The Conference Board said consumer confidence unexpectedly leaped in November to 56 from 40.9 in October. That marked the strongest level since May, two months before the debt-ceiling debacle in Washington.

"There had seemingly been a disconnect between the recent hard data on the economy, which had been okay, and the sentiment data, which had been downright miserable," said Feinman.

European Fears Loom

All of this is not to say the U.S. economy won’t be subject to shocks, especially from Europe. If the situation deteriorates in the euro zone, it could cause credit markets to freeze like they did in the 2008 crisis.

“If you look across the Atlantic, everything is miserable,” said Feinman. “The worry is that if things really blow up in Europe, some of that would wash across to U.S. shores.”

Still, Wednesday’s data gave U.S. investors a nice reprieve from a steady stream of downbeat news from Europe.