This morning the Labor Department reported that employers had added 115,000 people to their payrolls in April.  This was the second straight month that hiring actually decreased.  And, it confirms that at best, the economy continues to grow very slowly.

Contrasted with the disappointing employment numbers have been the mostly strong corporate earnings reports that have been released for the past quarter.  The divergence may be attributed to strong balance sheets, overseas growth, and some productivity gains.

Until we have a more pro growth agenda, and a solution to the lackluster housing/construction sector, we expect to see a continuation of muted jobs growth, and a slow growth economy.

On Wednesday, April 25th, Caterpillar reported earnings for their first quarter.  Many analysts focused their conference call questions on growth, or the lack thereof, in China.

CAT’s CEO did acknowledge the longer-term slowdown in China’s rate of growth from 10%-15% to a more sustainable 7%-10% growth rate.  He also allowed that China has done a remarkably good job of taming a very high rate of inflation, and a potential real estate bubble, by raising interest rates, and raising the down payment requirements for individuals buying second or third homes.

Many U.S. companies have a stake in seeing China prosper and grow, but that growth must be managed with an eye toward sustainability, not short term goals.  According to Douglas Oberhelman, the CEO of Caterpillar, China is doing a very commendable job in ensuring this outcome.

As Laura noted last week, the economic data remains mixed.  March durable goods were also a big disappointment today at -4.2%.  There seems to be a large disconnect right now between the data and the earnings being reported.  Out of the 188 companies that have reported so far, 77% have beat the estimates.  The S&P 500 earnings growth rate has increased from 1.0% to 6.3% over the past two weeks as earnings have been reported.  More importantly for investors, 30% of the S&P has increased their dividend during the first four months of 2012.  This is the best dividend showing since 2005.

Both Spain and the UK have now entered recession territory.  This is not surprising given the Eurozone’s effort  to deal with its financial and fiscal crisis.  The US is still growing despite the continued high unemployment.  While sentiment is still negative surrounding US growth prospects, a decent increase in employment could lead to even bigger earnings upside surprises.

Despite all the negative geopolitical news, the market has maintained its positive momentum.  Positive earnings reports combined with the relative unattractiveness of returns on cash and bonds have kept investors interested in the equity market.

From Ed Yardeni’s Morning Briefing today:

What do industry analysts have in common with Navy SEALs? They both have nerves of steel. Industry analysts didn’t flinch last week. Despite all the flash crashes in commodity markets, consensus expected earnings for the S&P 500 rose to a new high of $99.69 a share for 2011 and $113.13 for 2012. Forward earnings–the time-weighted average of this year and next year–rose to $104.34, exceeding the previous record high of $103.79 during October 2007. Despite the political upheaval in the Middle East and the nuclear meltdown in Japan, forward earnings have increased every single week since the beginning of the year.

The 2011 S&P 500 earnings estimate has risen 3.9% since the end of last year from $95.97 to $99.69 last week. The Q1 earnings surprise has added $1.16 over the past five weeks to the 2011 estimate. The estimates for Q2-Q4 have all been rising too, and have added $1.05 to the 2011 estimate since the start of the Q1 earnings season. It really is déjà vu all over again with a significant difference. When actual results beat expected ones over the past eight quarters, industry analysts didn’t raise their subsequent quarterly numbers as they’ve been doing during the current earnings season. (See our blog for three charts showing the consensus weekly forecasts of quarterly earnings for 2009, 2010, and 2011.)

On Monday of this week S&P downgraded their outlook for U.S. sovereign debt to “negative” from “stable”.  The news roiled markets around the world.

Fast forward two days later and the equity markets across the globe have shrugged off the news and rebounded smartly.

On Tuesday and Wednesday we had a slew of good earning reports from the likes of IBM, Intel, American Express, and Qualcomm.  In addition to the good news from domestic companies, Spain had a successful bond auction, and the price of oil seems to be rising due to increased U.S. demand.

The market is rising on fundamental good news.   Let’s hope we have follow through and the volume to go with it.

There was not any good news today, but the market has held up remarkably well.  The Case-Shiller home price data continued the decline that began in August.  Home prices in the 10 major metropolitan areas fell 0.9% in January, and the 20-city index fell 1.0%.  The turmoil in the Middle East and the problems in Japan have affected consumer confidence, and the index dropped to 63.4 from 72 in February.

The news out of Europe was gloomy as well.  The banking sector remains under pressure with downgrades of the five largest banks in Portugal, and S&P may also cut the country’s credit rating.  The Irish banking sector may need another bailout after the central bank finishes reviewing the latest round of stress tests. 

As Laura pointed out last week, there has also been good news for the market.  Corporate earnings have been strong, and there have been a number of announcements regarding stock buybacks, dividend increases, and mergers.  However, this tug of war between positive and negative sentiment has continued to unsettle the market.  The ongoing conflict in the Middle East and the resulting increase in the price of oil combined with the disruption to the supply chain in Japan will make it difficult for corporations to maintain margins over the near term.

Yesterday the Dow Jones Industrial Average was up over 180 points.  Today the Dow is down over 130 as of the time of this post. 

While we have received some reasonably good economic data, including a good employment number this morning, oil has climbed back above $104, and it seems to be headed higher.  There have also been a number of companies that have reported good fourth quarter 2010 earnings and revenue numbers, but have delivered cautious guidance going forward.

This dynamic, coupled with the uncertainty of the current outlook for the Middle East, does not bode well for the near term performance of the equity markets.

It should not come as a surprise to anyone that the Chinese are contemplating their own “Jasmine Revolution”.  Bloomberg reported that over the weekend, Internet messages urged people to “gather in 13 major cities to demand food, jobs, housing and justice”.

The Chinese government responded by arresting some human rights lawyers, locking down university campuses, and banning the use of certain keywords on mobile phone messages.

More than rising interest rates, or requiring higher bank reserves, this most recent Chinese ”revolution”, could dampen earnings growth for many companies relying on China to help power their earnings,  and hinder any advance for the equity markets.

Many professional investors would say that the housing market is still in the doldrums.  Projections are downbeat, and inventory is high.

But, just as the market performance as a whole is a good leading economic indicator, so too do certain stocks or sectors predict what may lie ahead for a certain industry.

Jim Cramer recently pointed out in his “RealMoney” column, that stocks like Whirlpool, Lowe’s, Black and Decker, and William Sonoma have seen big upward moves in the price of their shares.

The upward trajectory of these stocks is probably a good indicator of positive news to come in the housing market.  Watch for it.

If the stock market closes out this Friday, and 2010 at or above the levels it closed out today, December 29th, it will be the best December since 1991.  The S&P finished the day at 1259, and the Dow closed at 11,585.

Due to rising demand for oil, the per barrel price will likely finish 2010 above $90.  While this has been great for energy stocks and the related services companies, we will be closely watching this price for continued upward pressure.  At some point, it could certainly put a damper on the consumer and negatively effect our nascent recovery.

To the extent the  job market improves, corporate earnings continue on their upward trajectory, domestic inflation remains tame, and the booming emerging economies can continue to grow while managing their inflation, 2011 looks to be a promising year.

As always we will be watching the data carefully, and monitoring domestic and global activity for any changes that may presage a negative market environment.