Factory activity jumps, as do jobless claims

The US economy got some conflicting readings on Thursday, but the bulk of it was positive.

The S&P 500 closed above 4000 for the first time, and US manufacturing activity increased in March at the fastest pace in 37 years, a sign of strengthening demand as the COVID-19 pandemic wanes and government stimulus money sloshes through the economy.

But the number of Americans filing new claims for unemployment benefits unexpectedly rose last week. Initial claims for state unemployment benefits jumped 61,000 to a seasonally adjusted 719,000 for the week ended March 27, the Labor Department said.

The Institute for Supply Management (ISM), a trade group of purchasing managers, said that its measure of factory activity rose to 64.7 last month — the highest level since 1983 — from 60.8 the previous month.

A reading above 50 indicates an expansion in manufacturing, which accounts for 11.9 percent of the US economy. Economists had forecast the index rising to 61.3 in March.

"It's started to really transition to an extremely strong, demand-driven economy," said Timothy Fiore, head of the panel that oversees the ISM factory survey. He said the industry is in a V-shaped recovery. "Companies and their suppliers have not been able to react quick enough to staff up."

Many companies, however, reported difficulties in keeping up with demand, as snarled supply chains have delayed parts shipments, and many firms have struggled to hire enough workers.

The rising demand may increase fears that inflation will rise in the coming months, as a post-pandemic jump in spending could continue to outstrip supply. International shipping has been snarled by delays at ports, which often have fewer workers on the job in order to prevent viral spread.

The Suez Canal blockage, which is still being unwound, has further disrupted international shipping.

Pent-up demand has been so high, The Wall Street Journal reported, that shippers are running low on containers in which to ship goods by sea. Still, the World Trade Organization expects the cross-border flow of goods to increase by 8 percent this year, erasing a 5.3 percent drop in 2020 as the pandemic hit factory output and shipping.

In the eurozone, factory activity grew at the fastest pace in at least two decades, according to IHS Markit, with the continent's purchasing managers index rising to 62 in March from 57 a month before.

Another factor for the economy is the potential for higher corporate taxes as a result of President Joe Biden's $2.3 trillion infrastructure plan that was announced on Wednesday.

"The larger impact to markets will be whether or not the corporate tax rate is raised to 28 percent — or somewhere in between there and the current 21 percent level — and whether or not a global minimum tax on corporations can be established," said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, marketwatch.com reported.

"It's likely that the stock market can withstand a hike in the corporate tax rate to 25 percent, but unclear how much room there is above that if stocks are going to keep moving higher between now and year-end," he said.

Americans have shifted their spending during the pandemic, as most consumers have been reluctant or unable to eat out, shop, or visit movie theaters as often as in the past. Instead, they have spent more on factory goods, such as new cars, furniture for expanded home offices, and workout bicycles.

In the stock market, the S&P 500 surged on Thursday to its first-ever close above the 4000 mark, bolstered by gains in Microsoft, Amazon and Google parent Alphabet.

The three tech giants along with Nvidia jumped 2 percent or more, with those and other growth stocks showing signs of awakening after lagging in recent weeks. Alphabet's 3.3 percent rally sent it to its highest close ever.

"What a great way to start the second quarter," said J.J. Kinahan, chief strategist with TD Ameritrade. "There's money out there looking to be put to work, and with the (first) quarter ending, it looks like people are finding new ways in a new quarter to find opportunities."

The Dow Jones Industrial Average rose 0.52 percent to close at 33,153 points, while the S&P 500 gained 1.18 percent to 4020. The Nasdaq Composite climbed 1.76 percent to 13,480.

The S&P 500 is up about 7 percent in 2021, and it has gained 80 percent from its low in March 2020.

"We're still bullish for this year, and we think that with stimulus, with the Fed committed to being dovish, with the economy reopening due to more of the US getting vaccinated, overall you're going to see corporate earnings do pretty well," said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.

The CBOE volatility index slipped below 18 points for the first time in 14 months, a level last seen before the coronavirus-driven global financial market meltdown in March 2020. US stock markets will be closed on Good Friday.

The government's closely watched employment report on Friday is expected to show a surge in job growth in March.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 647,000 jobs last month after rising by 379,000 in February. That would leave employment about 8.8 million below its peak in February 2020, highlighting that a full labor market recovery is years away.

At least 18.2 million people were collecting unemployment checks in mid-March, a sign that long-term joblessness was becoming entrenched.

"But even at that rapid (hiring) clip, it would take the economy until January 2024 to get back to pre-pandemic trends," said Andrew Stettner, senior fellow at The Century Foundation. "This cold, hard math underscores the hurdles facing the millions of workers still on state or federal jobless aid as they seek to return to productive work."

Agencies contributed to this story.