#46 – Inside Our Industry – Economy Continues in Growth Mode

Economy Continues in Growth Mode

Several notable economic indicators have recently posted. While there are many out there, the following caught our eye. We are hopeful that the haze of the COVID-19 pandemic is clearing.

Real GDP grew at a 6.4% annual rate in Q1, very close to the consensus expected 6.7%.

The American Chemistry Council’s Chemical Activity Barometer (CAB) report for April showed a twelfth straight month-over-month increase in the CAB index. The significance of this is the fact the CAB Index leads the trough in the economy by an average of four months. The year-over-year increase equaled 21.7% and was the largest YOY increase since the 22.6% YOY increase in March 1951.

The Conference Board’s Leading Economic Index (LEI) report for March noted a 1.3% increase. The report noted, “The improvement in the U.S. LEI, with all ten components contributing positively, suggests economic momentum is increasing in the near term. The widespread gains among the leading indicators are supported by an accelerating vaccination campaign, gradual lifting of mobility restrictions, as well as current and expected fiscal stimulus. The recent trend in the U.S. LEI is consistent with the economy picking up in the coming months, and The Conference Board now projects year-over-year growth could reach 6.0 percent in 2021.

Peak earnings reporting season for the first quarter is upon us. Of the 153 S&P 500 companies that have reported earnings for Q1 2021, 86% have exceeded analyst expectations. In a typical quarter, 65% of companies beat expectations. Maybe more significant is the fact that the upside earnings surprise factor is 22.3%. The average surprise factor going back to 1994 is only 3.7%. With more state economies opening and vaccination rates increasing, business activity is picking up and this is reflected in recent strong corporate earnings reports.