Rite of Spring: U.S. Economy Warms Up After Winter’s Chill Economic gauges released Tuesday showed a pickup in industrial output, continued momentum in the housing sector and firming inflation all pointing to stronger—though still unspectacular—growth in the second quarter.
(…) Forecasting firm Macroeconomic Advisers on Tuesday estimated GDP would expand at a 2.3% pace in the current quarter. The Federal Reserve Bank of Atlanta put its estimate for second-quarter growth at 2.5% after Tuesday’s data. (…)
The Fed said industrial production—a measure of everything made by factories, utilities and mines—surged 0.7% in April, the biggest jump for a single month since November 2014.
Utilities drove the increase, boosting output by nearly 6% to respond to higher demand for electricity and natural gas. The Fed attributed the jump to a return to normal weather in April after a warmer-than-usual March.
Factory output grew 0.3% in April after falling by the same pace in March. Demand for big-ticket items like machinery and cars picked up last month. (…)
Housing starts rose 6.6% in April from a month earlier, the agency said Tuesday, and building permits climbed 3.6% from March. Over the first four months of 2016, starts rose 10.2% compared with a year earlier and permits were up 2.9%. (…)
Fed Officials Flag Potential for June Rate Increase Three influential Federal Reserve officials said the central bank could raise short-term interest rates at its meeting next month, pushing back against investors who put low odds on such a move.
San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart both said Tuesday that the central bank’s June meeting is “live,” meaning officials could consider lifting rates. (…)
Dallas Fed President Robert Kaplan later during an event in Midland, Texas, called for rate increases “in the not-too-distant future” and said he may advocate for a move in June or July.
Their comments are significant because all three men tend to represent the consensus view among policy makers, even though they aren’t currently voting members of the Fed’s rate-setting committee. While they didn’t call for raising rates in June, their remarks suggest that they want to keep their options open and that markets are underestimating the possibility of such a move. (…)
Last week, Boston Fed President Eric Rosengren, a longtime supporter of low rates, reiterated a warning that financial markets are likely underestimating how many rate increases lie ahead. (…)
One potential hurdle to Fed action next month is the U.K.’s June 23 referendum on whether to leave the European Union. The vote falls the week after the Fed’s June 14-15 meeting, which has raised questions over whether the Fed might delay a rate increase pending the outcome. (…)
Let’s see what this “data dependent” Fed got from the U.S. economy in recent weeks:
- April 29: Chicago Purchasing Managers Index Disappoints & Trends Sideways
- May 2: U.S. PMIs SIGNAL NO “Q2 BOUNCE” YET The Index was 49.5 in Feb, 51.8 in March and 50.8 in April. Markit said that “the latest reading was weaker than the average seen in Q1 2016 (51.7) and signalled the slowest improvement in overall business conditions for just over six-and-a-half years.(…) Manufacturers recorded another modest increase in overall new work at the start of the second quarter, but the rate of expansion was the weakest since December 2015. Reduced export demand had a negative influence on manufacturing order books in April, with new work from abroad decreasing at the fastest pace for nearly one-and-a-half years.”
- May 2: U.S. Construction Activity Improves
- May 3: U.S. Light Vehicle Sales Recover as Truck Purchases Surge Sales recovered from a dismal March but remained in a downtrend.
- May 4: U.S. SERVICES PMI AT 52.8 ON MODEST NEW ORDERS GROWTH Markit said that “The latest survey highlighted that business confidence across the service economy was up fractionally in comparison to March, but still close to the lowest seen since the survey began in October 2009.”
- May 4: U.S. Trade Deficit Narrows as Exports & Imports Both Fall
- May 4: Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession
- May 9: Waning US hiring trend adds to signs of second quarter economic weakness
- May 11: Retail Imports Plummeted in March Amid High Inventory Levels
- May 13: U.S. Initial Unemployment Insurance Claims Surge Initial claims for unemployment insurance jumped to 294,000 (7.8% y/y) during the week ended May 7, after rising to an unrevised 274,000 in the prior week. It was the highest level of claims since February 2015.
- May 16: U.S. Retail Spending Strengthens First good month in 2016 but some say “flawed seasonal adjustments boosted the numbers”.
- May 17: U.S. Industrial Production Posts Strong Rebound Well, it was up 0.7% after –0.9% in March (revised from –0.6%) and –0.2% in February. Flat after 4 months in 2016.
- May 17: Empire State Factory Sector Activity Index Reverses Earlier Improvement Deterioration in the component series was broad-based. (…) Based on these figures, Haver Analytics calculates a seasonally adjusted index that is comparable to the ISM series. The adjusted figure declined to 48.1 from 51.9, and also indicated that business activity deteriorated this month. Since inception in 2001, the business conditions index has had a 65% correlation with the change in real GDP.
Hmmm…Not much to hang one’s hat on. And since the Fed now cares about the ROW, the JP Morgan PMI sums up Q2 so far: Global economy stuck in low gear at start of Q2
Global economic growth ticked higher for a second successive month in April, according to the JPMorgan Global PMI™, compiled by Markit, but was still one of the weakest rates seen for over three years. The PMI is broadly consistent with global GDP growing at an annual rate of just 1.5% (at market prices) compared with a long-run average of 2.3%. Developed world growth continued to edge higher from February’s recent low, though remained weaker than at any time seen since early-2013, while emerging markets returned to stagnation.
So, when John Williams says that
I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings, not just June, which means it’s very live in terms of that, (…)
…he must have other data in his mind than what has been officially reported…I wonder if he has this data:
JOB CUTS JUMP 35% IN APRIL TO 65,141 More Than 250,000 Cuts in 2016; Most Since 2009
The pace of downsizing increased in April, as US-based employers announced workforce reductions totaling 65,141 during the month, according to the latest report released Thursday from global outplacement consultancy Challenger, Gray & Christmas, Inc.
The April figure represents a 35 percent increase over March, when employers announced 48,207 planned layoffs. Last month’s job cuts were 5.8 percent higher than the 61,582 recorded in April 2015.
Employers have announced a total of 250,061 planned job cuts through the first four months of 2016. That is up 24 percent from the 201,796 job cuts tracked during the same period a year ago. It is the highest January-April total since 2009, when the opening four months of the year saw 695,100 job cuts.
“We continue to see large scale layoffs in the energy sector, where low oil prices are driving down profits. However, we are also seeing heavy downsizing activity in other areas, such as computers and retail, where changing consumer trends are creating a lot of volatility,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
Layoffs announcements total 250k after 4 months, up 24% YoY. Announced new hirings are 38k, down 12% YoY.
The European Union’s statistics agency confirmed on Wednesday a preliminary estimate that showed consumer prices were 0.2% below their year-earlier levels in April, making it the second month this year in which the eurozone was in deflation.
Core inflation was unchanged MoM in April and +0.7% YoY from +1.0% in March and +0.8% in February.
Japan’s Rebound Blunts Push for New Stimulus A 1.7% quarterly GDP rise complicates Abe effort to boost economy, giving fuel to Japan’s deficit hawks.
(…) Growth in the first quarter was lifted by unexpectedly strong household spending and government demand, rising 0.5% and 0.7% on quarter, respectively. But economists at BNP Paribas said in a note that without the extra day in February, private consumption would have been flat, leaving public demand as the driver of growth.
But business spending remained weak. Companies cut investment 1.4% compared with the previous three months. That was the first decline in three quarters. (…)
US raises duties on Chinese steel Cold-rolled variety slapped with 500% levies as global backlash deepens
(…) China’s Ministry of Commerce expressed “strong dissatisfaction” with the decision by the US, which it said had employed “unfair methods” in assessing the tariffs. (…)
Cold-rolled steel accounts for about a 10th of the $2bn in Chinese steel the US imported last year.
US regulators are also in the midst of a number of investigations of other Chinese products, including other categories of steel.
China says to support steel exports as U.S. imposes hefty tariffs China said it would persist with controversial tax rebates to steel exporters to support the sector’s painful restructuring program, defying a United States move to impose punitive import duties on Chinese steel products.
“we downgrade equities to Neutral over 12 months on growth and valuation concerns. Until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis.”