Is it up, up and away for the U.S. housing industry?

With manufacturing under pressure, the housing recovery should be a tailwind for GDP growth rates.

Robert Johnson, CFA 27 April, 2015 | 5:00PM Roland Czerniawski

It was a great week for equity markets and commodity markets around the world. Most of the activity this week was driven by first-quarter earnings reports that were particularly strong. Most equity markets were up between 1% and 3%, with the S&P 500 pulling up the rear at 0.85% weekly growth while the NASDAQ composite was up over 3% (thank you, Amazon AMZN and Microsoft MSFT). Europe and the EAFE indexes performed in the middle of the range for world equity markets with gains of around 2%. Increases in emerging markets in general and China in particular remained out of control with another growth rate near 3%, even as the economic news out of China continued to disappoint economists. Rabid Chinese investors, not so much. Emerging markets are up almost 10% over the last month. Commodities, as usual, were one of the worst performers but still managed a gain of 0.8%.

Much of the strength was related to strong earnings reports that dominated the news flow this week, with little economic or government-related news to move markets. Earnings reports were generally better than expected, by relatively typical margins. However, sales reported by S&P 500 companies were clearly disappointing, with more than half of all companies missing revenue forecasts, a relatively high miss ratio. A strong U.S. dollar is probably the key reason for that disappointment. Overall, earnings for the quarter are now expected to decline just 2.8% versus expectations of a 4.0% decline just a week ago. The difference comes from a large number of high profile "earnings beats" this week including Microsoft, Caterpillar CAT, and Amazon. A shrinkage of 2.8% year over year in S&P earnings growth sounds terrible. It sounds especially bad in light of full-year growth in S&P 500 earnings that has been running at 6% to 8% per year for the past four years. However, the combination of a collapsing energy sector and a falling dollar masks some pretty good strength. Without the energy sector (which was down 65.0%), earnings would be up a more palatable and typical 5.6%. Exclude the companies deriving more than 50% of their revenues from overseas plus those pesky oil companies, and earnings were up 9%. The IT sector and health-care companies are leading the earnings way. Overall six of 10 sectors are expected to see earnings growth in the first quarter, while energy, utilities, materials and telecom are all expected to show declines for the quarter. First-quarter earnings estimates data includes actual results for the 40% of companies that have already reported results.

The economic news from around the world was relatively light. Durable-goods orders for the U.S. and Markit purchasing manager data from around the world indicated that manufacturing remains under considerable pressure everywhere, not just in the U.S. The fact that all markets, including those with weak currencies and more temperate climates, are soft, indicates that the manufacturing problems extend way beyond currencies and weather. Overall, slow world growth rates, a still-staggering energy complex and a soft market for anything vaguely related to commodities are weighing heavily on manufacturing growth rates. While soft, and certainly softer than they were, the manufacturing growth rates are not free falling, either, with growth rates hovering near zero in many locales.

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

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