Faceoff: Is it time to celebrate good economic data?

After a big December that saw US consumers fire up their credit cards in preparation for the holiday shopping spree, things were looking somewhat shaky heading into the New Year. By the beginning of March, data suggested that people had indeed reined it in a bit, but based on Tuesday’s strong jobs numbers, Americans still appear to be saving the cash for everything from meals to holidays.

In our weekly Faceoff, Nick Colas, co-founder of Data Set Strategies and founder of WSJ’s “Commodity Heat Map,” and Dianna Buffington, co-founder of Shebly Taplin Capital Management, went head-to-head on whether we should be celebrating good economic data, or if the Federal Reserve should take pause as the pace of its rate hike trajectory continues.

Read on to see what they had to say:

Nick Colas: Two issues are weighing on the stock market in 2018. The first is the loss of Fed policy optimism from months ago, which is having a pronounced negative impact on stocks. That is a new challenge for investors — one they should not overlook. The other, which has had only a milder impact on the market, is the issue of weakening consumer confidence and spending. On Friday, we had an early indication of sentiment trends as January’s motor vehicle sales declined at the sharpest pace in 16 months, with new vehicle sales falling more than 5%. Consumer confidence fell back from the year-ago level in February for the second month in a row — a development that is clearly concerning to those who seek to project economic growth. A separate report from the Conference Board showed that its “consumer confidence index” fell by a not-insignificant 4.5 points in February — the largest one-month decline since early 2017. And a fifth report shows the job market expanding slowly in February. Any one of these reports could have the market selling off on concern about the strength of the economy. But there are important distinctions between these reports that investors need to put in context. The past several reports have shown some weakness. But this report, I believe, should provide some relief for markets. In the end, markets trade based on earnings. And the earnings reports due to come out in the next few weeks should demonstrate a very strong global economy, one that is growing at an extraordinarily high rate. There are three companies coming out in the next few weeks that suggest more strength in this regard: United Technologies (UTC), 3M (MMM) and Colgate-Palmolive (CL). Both airlines and tech have been leaders in the last few months, and the market still seems to favor tech, leaving one area to still benefit from a strong global economy: Financials. Analysts expect this group to see 4% revenue growth in 2019. Meanwhile, the first dividend increase from GE (GE) is imminent — a company this large and this troubled, justifies any hope that investors have for it.

Dianna Buffington: Last week saw a key job report that left the Fed on pause. In February, the US added a robust 304,000 jobs, the highest on record, while unemployment dropped to 3.9%. January’s unemployment rate was revised down, and wages also grew at the fastest pace in seven years. It is one month’s data and will not change Fed monetary policy in any meaningful way, but last month’s employment report will surely impact people’s financial decisions. Not only that, but what was included in the wage data was a wide variety of workers. We saw major increases in the average pay for construction workers and other non-educated workers. We saw two jobs reporting gains of more than 50%, also. Finally, monthly wage gains are not static — they vary over the course of the year based on multiple seasonal factors. The fact that the overall wage growth for non-seasonally adjusted workers is now on the rise is a good thing for investors. After years of low wages, people are finally making more money. I say “people” for two reasons: First, household spending drives over two-thirds of GDP growth, so a higher wage is great for consumers and for the economy. Second, since even more people are working now than before the recession, that means there is a larger pool of potential workers that can have a trickle-down effect on consumer spending.

Faceoff transcript:

Nick Colas: Hi, ladies and gentlemen, Nick Colas. I’m joining you via Facebook Live from our Houston studio.

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