With the payroll tax in effect and the sequester beginning to slowly phase in, many have worried that the U.S. economy is on thin ice. But those looking for the economy to fold might have been caught off-guard with the economic data starting to surprise on the upside since the beginning of February.
Thursday we had the conference board leading indicators, Philly Fed, and Market preliminary PMI surprise expectations to the upside. Existing home sales did ease and buck the trend, but one quick look at the U.S. Citigroup Surprise Index (on right) shows that on balance the U.S data is coming in better than the muted analyst estimates.
I wouldn’t dismiss the fact that the payroll tax, the sequester, and higher gas prices are all headwinds pressing against the U.S. expansion. And I also wouldn’t be surprised if the market corrects at some point in the near future since it’s overbought after its impressive start to the year. But beyond a healthy correction, I would say that the continuing improvement in housing, jobs, and leading indicators will likely allow the economy to fight off these headwinds and continue a slow growth profile.
Tactically, it might be time to dial down the enthusiasm a little. But don’t get too bearish here, because the data is getting better, the Fed Chairman is supporting the economy and asset prices, and slow growth plus flush liquidity is usually a pretty good environment for asset prices.