Positives
- Q1 GDP grew by 2.3% annualized, better than the 2% expectations. A main contributor to the beat was the inflation deflator which came in 2 tenths less than expected. Thus, nominal GDP was one tenth above the estimate. Spending was positive thanks to services and more than a 3rd of the contribution from services was from spending on healthcare. Private investment added about 120 bps of the headline figure. Inventories added 4 tenths while trade and government spending added 2 tenths. Real final sales rose just 1.9%, the slowest since Q4 2016 after a strong 3.4% gain in Q4. US exports did hit a record high in March.
- The Q1 Employment Cost Index rose .8% q/o/q, one tenth more than expected. Private sector wage and salary growth of 2.9% y/o/y was the best since 2008.
- Initial jobless claims totaled 209k, the least amount since December 1969. The 4 week average fell to 229k from 232k.
- While the UoM consumer confidence index for April did slow to 98.8 from 101.4 (the best in this expansion), it was one pt above the forecast. About all of the m/o/m decline was in the Current Conditions component as Expectations was little changed. One year inflation expectations held at 2.5% for the 4th straight month.
- The Conference Board consumer confidence index for April rose to 128.7 from 127 and better than the estimate of 126. The peak in this cycle was 130 in February. Both current conditions and the outlook improved. The answers to the labor market questions were mixed. Spending intentions improved. The Conference Board bottom lined the report by saying “Overall, confidence levels remain strong and suggest that the economy will continue expanding at a solid pace in the months ahead.”
- Even though the average 30 yr mortgage rate broke out to the highest level since September 2013 at 4.73% according to the MBA, up a large 7 bps on the week, mortgage applications did hang in there as purchases saw no change w/o/w and are still up 11.3% y/o/y. Refi’s fell just .3% w/o/w but remain down 16% y/o/y.
- New home sales in March surprised to the upside with an annualized total of 694k vs the estimate of 630k and February was revised up by 50k to 667k. Regionally, the upside was all due to sales out West as they fell in the Northeast and Midwest and were little changed down South. As the number of homes for sale were unchanged, months’ supply fell to 5.2 from 5.4.
- CoreLogic said existing home prices jumped by almost 7% y/o/y in February, great for owners and really tough for buyers at the same time mortgage rates are rising.
- Existing home sales in March totaled 5.6mm, 50k more than expected and up from 5.54mm in February. With the number of homes for sale rising to the most since October, months’ supply ticked up to 3.6 from 3.4. Home price gains did moderate to 4.1% y/o/y. First time home buyers made up 30% of purchases vs 29% in the two prior months but still down from 32% one year ago. The NAR is saying that better weather in March led to better closings relative to February (I however don’t like blaming weather when dealing with existing homes as opposed to construction of new) but also cited still the challenge of “speedy price growth is squeezing overall affordability in several markets – especially those out West” with much of this being due to a dearth of inventory.
- The Markit manufacturing and services composite index did improve to 54.8 from 54.2 with both components higher m/o/m. With respect to inflation, Markit said “In line with stronger client demand, and rising cost burdens, average prices charged for goods and services increased solidly. The rate of input price inflation was the quickest since July 2013, with panelists noting that the introduction of tariffs had been a key factor pushing raw material costs higher.”
- The KC manufacturing index rose 9 pts m/o/m. The estimate was for no change. It’s at the best level since the survey began in 2001 but it came with “concerns among many firms about changes in international trade policy” and “price indexes also continued to rise.”
- The Japanese labor market remained real tight in March as the unemployment rate held at 2.5%, just off the lowest level since 1993. The jobs to applicant ratio rose to 1.59 from 1.58 and that matches the highest level since 1974.
- While I believe low inflation is a good thing, especially for an aging population and very modest wage growth, the BoJ won’t be happy that April CPI in Tokyo was up just .3% y/o/y ex food and energy vs the estimate of up .5% and vs .5% in March.
- Japan’s April manufacturing PMI rose a touch to 53.3 from 53.1 in March and vs 54.1 in February. “The improvement in the headline PMI was underpinned by stronger rates of growth in output, new orders and employment. Furthermore, business confidence strengthened, while output prices were hiked to a stronger degree, signalling optimism in demand conditions.”
- Free of distortion from the Chinese Lunar New Year, March exports from Hong Kong rose 8% y/o/y, well more than the estimate of up 3.1%. The upside was driven by a 17.3% exports to mainland China while exports to the US fell .8% y/o/y and .5% to Japan but rose almost 6% to Germany. Imports were higher by 10.7% y/o/y which was about double the forecast of up 5.2%.
- The April Economic Confidence index was 112.7 unchanged from March but that was above the estimate of 112. It still is at the lowest level since August.
- The CBI sales index only improved from -8 to -2 but the estimate was -3. CBI said “sales were below average for the time of year for the 2nd month in a row.” Online sales though did rebound after a soft March. CBI also said “It’s no secret that UK high streets have endured tough trading conditions in recent months, with some big names closing or cutting back. Much of this reflects ongoing structural changes in the sector as well as the continued squeeze on households’ real incomes. While conditions have improved for households recently – with real wage growth inching into positive territory – we expect further gains in living standards to remain modest. So the pressure looks set to stay on retailers for the time being.”
- Aluminum prices came off the boil after compliance with Russian sanctions were extended to October.
- As a Jet fan, I can only be hopeful that Sam Darnold could be the one.
Negatives
- The BoJ, ECB and Riksbank continue on with NIRP and QE and their Great Depression like monetary policy. All though are slowly crawling to less accommodation.
- Core durable goods orders in March were again disappointing. Defined as non defense capital goods orders ex aircraft fell .1% m/o/m, less than the estimate of up .5% and off a lower than expected base as February was revised down by 5 tenths. On an absolute dollar basis, core capital spending is no different than it was in October.
- The Richmond manufacturing index went negative at -3, well below the estimate of +16. This is the first negative print since September 2016 with new orders, shipments and backlogs also negative. Employment was little changed while wage gains continued.The wage component jumped 5 pts to the highest level since 1997. Prices paid rose to the most in the year but prices received moderated a touch. Capital spending plans weakened and again here, no signs of acceleration.
- The French economy in Q1 grew by 2.1% y/o/y, below the estimate of up 2.3%.
- UK GDP was up just 1.2% y/o/y in Q1, less than the forecast of up 1.4%. That is the slowest rate of gain since Q2 2012.
- The UK CBI industrial orders index was unchanged at 4 as forecasted and matches the lowest level since October. The CBI said “that optimism about general business conditions deteriorated marginally, while domestic orders were largely unchanged on the quarter. Output growth slowed somewhat, but remained well above the long run average. In contrast, optimism regarding export prospects for the year ahead continued to improve at an above average pace, while export orders growth accelerated at the fastest pace in more than 20 years.” As every manufacturer is now scrambling for raw materials everywhere, “inventories of raw materials rose at the fastest pace since 1977.” Cost pressures though did moderate.
- The German IFO business confidence index fell to 102. 1 from 103.3 and that was below the estimate of 102.8. Both the Current Assessment and Expectation components were down m/o/m. Go back to January 2017 to see a print lower than this. The IFO was very succinct with its comments: “High spirits among German businesses have evaporated…The German economy is slowing down.” Manufacturing, services, wholesale and retail components all fell. The bright spot remains in construction which hit a record high.
- French business confidence for April fell 1 pt m/o/m as expected. It’s at the lowest level since June 2017 as manufacturing and retail fell. Services confidence was unchanged as was construction. Italian economic confidence fell m/o/m as well.
- The eurozone manufacturing and services composite index was unchanged at 55.2 but this is still the lowest level since January 2017. A slight uptick in services helped to offset the 4th straight monthly decline in manufacturing to a 17 month low. This is what Markit said on the inflation front: “Some easing of inflationary pressures from recent elevated levels was reported, as input costs rose at the slowest rate for seven months. Slower growth of costs helped push selling price inflation down to a four-month low. Costs increases remained widespread, however, linked to both higher raw material prices (often in turn associated with demand exceeding supply) and growing staff costs. The latter led to service sector costs rising at an increased rate during the month.”
- Retail sales in Japan remain punk and they fell .7% m/o/m in March vs the estimate of no change. The big debate is whether to hike the sales tax again in 2019.