Weak Retail Sales in March Augur Ill for First-Quarter Growth The U.S. economy is again off to a poor start to the year, clouding the outlook and validating the Federal Reserve’s wait-and-see posture on raising interest rates.
(…) A 0.3% drop for retail sales in March, according to Commerce Department figures out Wednesday, marked the third straight month in which sales have been flat or falling. (…)
GDP forecasts for the first quarter of 2016 echo the pattern of the past two years: Macroeconomic Advisers is tracking a growth rate of 0.9%, Nomura expects 0.7%, J.P. Morgan Chase 0.2% and Wells Fargo 0.1%.
That apparent slowdown—following a muted 1.4% advance in the closing quarter of 2015—and weakening prospects for global growth are leaving Fed officials on a cautious path as they weigh the next move for interest rates. (…)
Auto sales set a record in 2015 but have been disappointing so far this year, tumbling last month. Americans also cut back on discretionary spending at restaurants and bars, clothing stores and department stores in March. (…)
U.S. Consumer Prices Rose Slightly in March U.S. consumer prices rose in March for the first time in four months, but the mild gain underscores only modest inflation pressures exist in the economy.
The consumer-price index, a gauge of what Americans pay for everything from tuna to televisions, rose a seasonally adjusted 0.1% from a month earlier, the Labor Department said Thursday. Overall prices last increased in November.
Prices for gasoline, medical care and shelter all increased last month, but those gains were partially offset by a decline in prices for food and clothing.
A measure known as core prices—which excludes often volatile food and energy prices—also advanced 0.1%.
From a year earlier, overall prices increased 0.9% in March, the slowest annual gain so far this year. Core prices rose 2.2% from a year earlier. (…)
Shelter costs—reflecting home rent and mortgage payments—increased 0.2% over the month and 3.2% over the year. Rents are rising at an even faster pace. Housing expenses reflect about a third of the consumer-price index.
The cost of medical care services rose 0.1% last month, a slowdown from the prior two months’ gains, but prices are still up 3.6% from a year earlier.
Meanwhile, food prices fell 0.2% last month. The “food at home” category, a proxy for groceries, fell 0.5%, the largest decrease since April 2009. Apparel prices fell 1.1% and new vehicles prices were unchanged. (…)
Fed Beige Book: Strong Job Market Delivers Higher Wages Most regions of the U.S. saw their economies expand, supported by firming labor markets, rising wage pressures and modest increases in consumer spending, the Federal Reserve said in its “beige book” report.
The Fed found 11 of its 12 regions reported wage growth in the period between late February and early April, according to its survey of economic conditions known as the beige book. (…)
Wages grew in areas with labor shortages, such as skilled manufacturing, construction, and information technology, as well as in low-skilled entry-level work, the latest beige book report said. Businesses in Philadelphia said they were raising starting wages to attract better workers, and a chemical company in Boston’s district said it was boosting pay by 15% at a facility in the South just to keep trained workers from leaving. Cleveland retailers said a shrinking labor pool was driving up pay. (…)
The survey paints a brighter overall picture of the economy compared with earlier in the year, with vast swaths of the country reporting job growth, wage increases and modestly rising consumer spending. Most districts said their business contacts expected a similar pace of growth going forward. (…)
(…) In March, average hourly earnings climbed by 2.3% from a year earlier, according to the Labor Department, suggesting to many that wages are finally in the midst of a sustained pickup. That’s a welcome sign for central bankers and economists, who see worker earnings as a key part of returning the economy to full health.
For U.S. companies, the picture is a little murkier. Higher wage costs could pose a risk to profits–and thus stock prices–particularly for low-margin industries like restaurants and retail. Goldman Sachs Group analysts, led by Ben Snider, calculate that for every one percentage point rise in labor costs beyond 3%, earnings per share on the S&P 500 Index would drop by about 0.7%. (…)
Eventually, wage pressures, which have been historically low and now are on the rise, will “have a differentiating effect on the profits and performance of U.S. equities,” the Goldman analysts write.
They see companies with low labor costs outperforming relative to those with industrials and consumer discretionary sectors, which would respectively trim 1.2% and 1.1% off earnings per share for every 1 percentage point rise beyond 3%. (…)
Fed Banks Spar Over GDP Data The race to provide credible real-time data on U.S. economic growth is pitting the Federal Reserve Bank of New York against its sibling in Atlanta, to the puzzlement of some traders.
The New York Fed said Tuesday that on Friday it will begin issuing a new report tracking U.S. gross-domestic-product growth. In doing so, the bank is indirectly facing off with the Federal Reserve Bank of Atlanta, which has published its own regularly updated GDP estimate, GDPNow, since July 2014.
Adding to the intrigue, the rival measures offer vastly diverging views of how the economy is doing. The New York Fed’s FRBNY Staff Nowcast is estimating tepid first-quarter growth at 1.1% and the Atlanta Fed measure is showing a near stall at 0.1%, according to the banks’ websites. Final official figures won’t be released until late June. (…)
GDP trackers are rapidly becoming a preferred tool for measuring the health of the economy among everyone from bond and currency traders to global economists. The demand for speedy data has led private companies to offer their own GDP estimates, although those have had a harder time getting traction with traders since the Fed issued its own. Most Wall Street banks, and firms including Moody’s Analytics, have GDP models. (…)
That said, some caution not to read too much into GDP trackers because of their large swings. Since they push out an estimate before all of the inputs are finalized, the trackers warn that there is less accuracy at the beginning of the tracking period than the end. (…)
GDPNow takes 13 subcomponents that go into GDP and constantly recalculates the forecast as new data are supplied. The use of the subcomponents is crucial; many models don’t take this “bottom-up” approach and develop estimates for those subcomponents and so can miss granular changes in the economy, researchers said.
The New York Fed’s models seek to capture the most important macroeconomic data and digest it as news headlines, “mimicking the way markets work,” according to the New York Fed.
Both seek to take the mix of past results, newly reported data and forecast data and through their models produce an overall rate of change, expressed as a percentage.
The Atlanta Fed’s tracker is updated the same day that major new data arrive, often within hours. The New York Fed will release its new estimates every Friday, with the exception of Fridays during its blackout periods around Fed policy meetings.…
New York’s Nowcasting tool was in the works for more than a year and is based on a similar methodology to Atlanta’s, a person familiar with the matter said.
Mr. Slok said he told clients to take an average of the two Fed numbers until both have longer track records. “Over time, we will figure out which one is better,” he said.
Meanwhile, the average of the two for Q1 is the middle of +0.1% and +1.1%! Talk about “uncertainty.
In the U.S., Bank of America Corp. announced a fall in first-quarter profit Thursday, amid declining trading revenue and low interest rates. Wells Fargo & Co. also said its first-quarter profit fell as it dealt with a slump in oil prices, but both banks’ results came in above analyst expectations.
Better-than-expected results from J.P. Morgan Chase & Co. had sparked a rally in bank shares Wednesday, leaving the Dow Jones Industrial Average roughly 2% away from its record-close set in May. (…)