U.S. inflation retreats on soft consumer spending
The Commerce Department said on Friday the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1 percent last month after an upwardly revised 0.2 percent increase in February.
Last month’s gain in the so-called PCE was in line with economists’ expectations. In the 12 months through March the core PCE rose 1.6 percent after advancing 1.7 percent in February. (…)
In March, consumer spending ticked up 0.1 percent after an upwardly revised 0.2 percent gain in February. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have risen 0.1 percent in February.
When adjusted for inflation, consumer spending was unchanged after increasing 0.3 percent in February. The consumer spending figures were included in the first-quarter gross domestic product report published on Thursday. The economy grew at a 0.5 percent annual rate in the January-March period, a sharp slowdown from the fourth quarter’s 1.4 percent pace.
Consumer spending is expected to regain momentum as wages steadily increase. Personal income rose 0.4 percent in March after nudging up 0.1 percent in February. Savings jumped to $735.5 billion last month, the highest level since December 2012, from $696.4 billion in February.
U.S. Growth Starts Year in Familiar Rut The U.S. economy stumbled out of the gate in 2016 with the gross domestic product growing only 0.5% in the first quarter, its worst performance in two years. Consumers and businesses showed renewed signs of caution, underscoring the uneven growth that has been a hallmark of the nearly seven-year expansion.
(…) Gross domestic product, the broadest measure of economic output, advanced at a 0.5% seasonally adjusted annual rate in the first quarter, the Commerce Department said Thursday. That marked the economy’s worst performance in two years. (…)
Slow first quarters followed by a rebound have been common in recent years, leaving hope for better months ahead. The U.S. economy contracted in the opening quarter of 2014 and barely grew at the outset of 2015, only to bounce back and leave the economy on the same staid trajectory seen during much of the expansion. For all of 2015, GDP advanced 2.4%, the same as 2014. (…)
“In the U.S., just about any market that is away from oil is doing pretty good,” Doug Oberhelman, chairman and chief executive of Caterpillar Inc., said last week. (…)
Still, while the first-quarter slowdown was predicted and a second-quarter rebound is expected, it isn’t assured. GDP growth has deteriorated steadily since hitting a 3.9% pace in the second quarter of 2015. The economy expanded at a 2% pace in the third quarter and 1.4% in the fourth quarter of last year.
Consumer spending, which accounts for more than two-thirds of economic output, has been decelerating for three consecutive quarters. Relatively low gasoline prices and steady job gains apparently haven’t been enough to spur consumers to splurge instead of save. (…)
The “Q2 bounce” is illustrated by this ISI’s table:
But Markit warns:
Worryingly, the surveys indicate that the malaise affecting the US economy has extended into the second quarter, albeit with the pace of expansion picking up slightly to 0.8%. While the upturn in the April survey data is welcome news, the subdued rate of growth signalled suggests the economy remains in a fragile state. Survey respondents blame weak global demand, the strong dollar, the energy sector’s recent plight and growing uncertainty about the presidential election as factors behind the recent slowdown.
The surveys also show weakness spreading from manufacturing to services in recent months, in a sign that consumer demand is being hit by worries relating to uncertainty about the economy, rising interest rates and a nascent recovery in oil prices.
With the Fed facing only a small window of opportunity to hike interest rates before the election, such disappointing data for the second quarter could raise the likelihood of any rate hike being pushed out until December, meaning the business survey data for May could be all-important for the Fed.
The U.S. Homeownership Rate Falls Again, Nearing a 48-Year Low The rate fell slightly in the first three months of 2016, dashing hopes that it had finally hit bottom.
In the first three months of this year, the rate was at 63.5%, not seasonally adjusted. That is down from 63.8% in the fourth quarter of 2015, according to estimates published on Thursday by the Commerce Department. That puts it back near its 48-year low of 63.4%in the second quarter of 2015.
At the end of last year, economists had said the homeownership rate appeared to have stabilized and might begin to tick upward after falling for years following the housing crisis. When adjusting for seasonality, the homeownership rate in the first quarter also fell slightly to 63.6% from 63.7% in the fourth quarter of last year. (…)
Some 363,000 new renter households were formed in the first quarter compared with the same time last year, about twice as many as the 177,000 new owner households. (…)
Another potentially worrying sign for the housing market: This was the second consecutive quarter when the number of new households formed was anemic, with the data showing just over 540,000 new households formed in total in the first quarter. In the third quarter of 2015, the number of renter households alone increased by 1.3 million. (…)
CalculatedRisk has more on this:
Canada’s economy sees first decline since September
Statistics Canada reported that real (inflation-adjusted) GDP dipped 0.1 per cent month over month, the first decline since last September. Manufacturing and wholesale trade suffered setbacks, evidence of sluggish demand for export goods as the U.S. economy stumbled. But those losses were offset by strong retail demand at home.
Eurozone Economic Recovery Picks Up
The European Union’s statistics agency said Friday that the eurozone’s gross domestic product rose 0.6% from the final quarter of 2015 and was 1.6% higher than in the first quarter of 2015.
This compared with a 0.3% rate of growth recorded in the final three months of last year, and was equivalent to an annualized pace of 2.2%. But economists expect growth to moderate in coming quarters, forecasting that the economy’s rate of expansion this year will remain close to the 1.6% recorded in 2015. (…)
EARNINGS WATCH
Recent days were good for earnings as Thomson Reuters’ calculations now give Q1 EPS down 6.1%, from –6.9% yesterday and –7.1% on April 1. However, revenue is seen down 1.4% vs –1.1% on April 1.
Nonetheless, results and guidance, so far, have not been good enough to prompt analysts to upgrade their estimates through 2016. Q2 is now expected at –2.9% (–2.2% on April 1), Q3 is seen at +2.7% (+4.7%) and Q4 at +9.7% (+10.6%). Full year 2016 would be +0.7% (+1.8%).
RBC’s tally:
- 287 companies (68.6% of the S&P 500’s market cap) have reported. Earnings are beating by 4.2% while revenues have met expectations.
- Expectations are for a decline in revenue, earnings, and EPS of -1.5%, -7.9%, and -5.5%.
- EPS is on pace for -4.2% (-4.6% yesterday), assuming the current beat rate for the remainder of the season. This would be +1.1% (+0.7%) excluding Energy.
Equity funds see more outflows as investors trim risk: BAML Investors continued to trim risk exposure in the past week, dumping stocks and putting money to work in bonds, Bank of America Merrill Lynch (BAML) said on Friday, warning of a possible “summer of shocks” ahead.
China warns off commodity market punters Text message 
warning to retail speculators is latest effort to prevent a bubble
How huge is China?
FYI: