Consumers Open Wallets, Cautiously

Sales at retailers and restaurants increased 0.9% last month to a seasonally adjusted $441.4 billion, the Commerce Department said Tuesday. That was the biggest monthly gain in a year, but it was still down from November, when retail sales reached their highest level since the end of the recession.

Compared with a year earlier, overall retail sales were up 1.3% in March. In March 2014, the year-over-year increase was 4.5%. (…)

The higher sales were largely driven by car purchases, which rose 2.7% last month. But weak sales at gas stations continued to hold back overall growth, despite an uptick in oil prices in March. When excluding both gasoline and autos, sales rose 0.5% last month.

A surge in spending at home-improvement stores, including building supplies and garden-equipment retailers, also helped boost sales in March.

Core sales are barely up YoY:

The next chart illustrates retail sales “Control” purchases, which is an even more “Core” view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s.

BloombergBriefs adds this on control sales:

The quarterly average for retail control had been running at 0.1 percent (quarter on quarter annualized rate), compared with 4.2 percent in the fourth quarter and 4.4 percent in the third. Retail control rose 0.3 percent in March, but February was revised down to minus 0.2 percent. January declined 0.2 percent as well. This pushed the quarter average into negative territory (minus 0.7 percent). That bodes poorly for spending in GDP data; retail control is a direct GDP input. Consumers contributed a decent March performance, but well short of salvaging an otherwise dismal first quarter.

Retail Control Points to Weak Spending Role in 1Q GDP

Ed Yardeni has the chart on real core sales:

What’s the problem? It might be our health. American consumers now spend a record $8,066 per capita annually on health care. Thanks to Obamacare, we are all paying more to the piper. The out-of-pocket costs of health care have increased significantly, with higher premiums and co-pays and bigger deductibles. Unfortunately, it’s hard to quantify this because statistics are not available. The government’s data show total spending on health care without showing payments made by the government, insurance companies, and consumers.

For retailers, Q1’15 looks ok YoY because last year’s base was so weak. Sequentially, things are not so good. The hope is that March is the beginning of a positive trend:

Small Businesses Not as Upbeat

The National Federation of Independent Business‘s small-business optimism index fell to 95.2 in March, from 98 in February. Economists surveyed by The Wall Street Journal projected the index to hold at 98.0. The NFIB said the index is the lowest since June 2014 and is back below its long-term average. All 10 subindexes declined last month.

Readings on plans to add jobs and raise capital spending took hits. The subindex covering plans to create new jobs fell two percentage points to 10%. The capital outlays subindex dropped two points to 24%. Overall, only 10% of respondents thought now is a good time to expand, a drop of three points from February.

Part of the weaker hiring number reflects a rise in recent hires. The average increase in workers added per firm was 0.18 worker in March, which the NFIB said bested the “excellent” readings of 0.16 in January and February. Also, the mismatch of labor eased somewhat. The subindex covering jobs that are hard to fill fell five points to 24%. But of those looking for workers, 84% said they were seeing few or no applicants who were qualified for the open positions.

In addition to cuts in hiring, small businesses are also trimming their physical expansion plans. Only 24% of owners plan to make capital outlays in the near term. That’s down from 26% in February and “not a strong reading historically,” the report said.  Unlike hiring, the drop in spending plans does not follow a speed-up in past spending. In March, 58% of small business owners reported making capital outlays, down 2 points from February.

The Student-Loan Problem Is Even Worse Than Official Figures Indicate More Americans are behind on student-debt payments than official measures suggest.

Nearly one in three Americans who are now having to pay down their student debt–or a staggering 31.5%–are at least a month behind on their payments, new research from the Federal Reserve Bank of St. Louis suggests. That figure is far higher than official delinquency measures reported by the Education Department and the New York Fed. And it’s also likely the most accurate.

Here’s why: The official measures reflect delinquencies as a share of all Americans with student debt, but millions of borrowers aren’t even required to make payments yet. Many are currently in college or grad school and thus don’t have to make payments until six months after they leave. Others are out of school and past that grace period but have received permission by their lender—the federal government in most cases—to suspend payments for a range of reasons, such as being unemployed.

Including these borrowers in the broader pool of student-loan debt makes official delinquency rates artificially low. For example, figures from the New York Fed’s quarterly report on household credit shows roughly 17% of all student-loan borrowers were at least 30 days behind on a payment at the start of this year. That’s still a very high number, but misleading nonetheless.

A more precise way of measuring delinquencies is to just look at borrowers who are required to make payments. In their new paper, St. Louis Fed researchers Juan M. Sánchez and Lijun Zhu determined that, as of Jan. 1, more than half of student-loan debt–55%– was held by borrowers who were in repayment. The remaining 45% weren’t in repayment.

Stripping out the borrowers not in repayment, they concluded that 31.5% of Americans with student debt were at least 30 days behind on a payment at that time. This matches up with previous research from the New York Fed suggesting the actual delinquency rate is likely double the official delinquency measure, when excluding borrowers not in repayment.

Delinquencies on student debt are far higher than those for other forms of consumer credit, including credit cards, mortgages and auto loans. For example, 8.5% of all auto loans were at least 30 days delinquent in the year through last September, according to the Kansas City Fed.

The researchers point to a kernel of good news: Delinquencies are no longer rising. But they’re not going down, either. Delinquencies spiked after the recession and then again in 2012 before falling and leveling off in the past few years.

U.S. Producer Prices Up in March

The producer-price index for final demand, which measures prices that businesses receive for their goods and services, increased a seasonally adjusted 0.2% last month from February, the Labor Department said Tuesday. Excluding the volatile food and energy categories, the index rose 0.2% as well.

From a year earlier, producer prices are still down 0.8%, but the index is up 0.9% on the year when removing food and energy.

The advance in the final demand index is largely due to a 0.3% increase in the price of goods. Vehicle prices, up 1.9%, posted their largest monthly increase since October 2008.

When excluding food, energy and trade services, the final-demand index was up 0.2% in March from February.

China Growth Slowest in Six Years at 7% China’s economy started the year on a downbeat note with its slowest quarterly growth rate since 2009, pointing to a further loss of momentum.

The growth figure — the second-lowest since 2001 – affords Beijing little cushion in hitting its 7% annual growth target. Other figures released on Wednesday suggest further weakness in the economy, which economists say could prompt Beijing to act further. (…)

Industrial production grew by 5.6% year-over-year in March, according to the statistics bureau, well below economists’ expectations of 6.9%, as factories continued to battle deflationary pressure and weak demand at home and abroad. Fixed-asset investment in the first quarter grew by 13.5% year on year, the agency said, slightly below economists’ expectations of 13.9%. China’s housing sales in the first quarter fell 9.1% compared with a 7.8% decline for all of 2014. The statistics agency doesn’t break out monthly investment or property figures. Retail sales in March grew by 10.2%. (…)

“The downward pressure on economic growth continues to increase,” Premier Li Keqiang said at a meeting with economists and business leaders Tuesday. He added that growth remains within a “reasonable range.” (…)

At a news conference Wednesday, statistics agency official Shen Laiyun said that China’s unemployment rate was about 5.1% according to a recent survey, which he said was roughly in line with last year’s level. (…)

Note that “the 5.1% figure is an internal measure that China only occasionally discloses and is considered somewhat more reliable than the official figures China usually releases.”

Much like in the U.S. and Japan:

Chinese nominal household expenditures also grew relatively slowly in the first quarter, although some of the moderation in nominal consumer spending is surely the price effect of cheaper gasoline and diesel.  (Charts from FT)

Scared? Look at this next chart from Zerohedge:

Note that the 7.0% GDP growth rate everybody os quoting today is YoY. China said growth was +1.3% QoQ SA, +5.3% annualized. This is down from +1.5% in Q4’14 and +1.9% in Q3’14. Big slowdown.

Eurozone Data Suggest ECB Stimulus Bearing Fruit The European Central Bank’s ample stimulus measures are boosting lending to companies and aiding industrial production by weakening the euro.

The report showed a sharp increase in the number of banks that now expect a rise in demand for corporate loans in the second quarter. The net percentage—the difference in the share of banks expecting demand to rise versus those expecting a fall—hit 39 in the second quarter, compared with only 17 in the first. (…)

“For the second quarter of 2015, banks expect a small net easing of credit standards on loans to enterprises,” it said, while for home loans “a further net tightening of credit standards” was expected.

The survey said banks have used added liquidity from ECB asset buys over the last six months “in particular for granting loans and intend to do so also in the coming months.” (…)

The European Union’s statistics agency said that production by factories, mines and utilities was 1.1% higher in February than in January, and 1.6% higher than in the same month a year earlier.

That performance indicates the euro’s depreciation since May 2014 is finally proving a game-changer for exporters, among whom manufacturers predominate. That is consistent with a March survey of manufacturers, which recorded the strongest rise in new export orders since April 2014.

Oil Prices Rise Oil prices rose again as the international energy watchdog struck an upbeat note on demand so far this year but warned the outlook remains “murky.”

The International Energy Agency, which advises industrialized nations on oil policies, said oil demand would rise by 1.1 million barrels a day this year, which would be a “notable acceleration” on last year’s 700,000 barrels a day growth. (…)

“One of the many questions hanging over the market today is, how quickly could Iran be expected to ramp up output and exports if the agreement were to be made permanent?” the IEA asked. (…)

But the IEA said Wednesday that the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, had throttled production by up to 31 million barrels a day in March, more than a million barrels above its agreed ceiling—possibly to lock in customers before sanctions are lifted on Iran. (…)

OPEC’s output rose by 890,000 barrels a day in March to a near two-year high of 31.02 million a day a day, as Saudi Arabia pushed output to record levels and supplies recovered in Iraq and Libya, the report said.

Crude oil supplies in the kingdom, the world’s largest exporter and OPEC’s de facto leader, rose by 390,000 barrels a day in March to an average 10.01 million barrels, the highest level since September 2013, the IEA said.

The IEA said preliminary data suggest that March’s output surge, the biggest monthly gain since June 2011, signal that OPEC production may rise further in April. (…)

There are signs that American production could slow earlier than forecast, the IEA said, trimming its prediction for U.S. crude oil growth by 50,000 barrels a day to 550,000 barrels a day in 2015. Growth estimates for North American production including Canada in the second half were trimmed by 160,000 barrels a day.

Senators, Obama Yield on Iran Key senators forged a bipartisan compromise to give Congress review power over a final nuclear deal with Iran, winning the endorsement of a reluctant White House.

(…) Under the agreement, Mr. Obama wouldn’t be able to waive sanctions on Iran for 30 days while Congress initially reviewed a final agreement struck to diminish Iran’s nuclear capabilities. Lawmakers would then be able to vote to approve or disapprove of the deal, or to take no action. If Congress passed a resolution rejecting the deal, Mr. Obama would have 12 days to veto the measure. If he vetoed it, Congress would have 10 days to try to override his veto, which requires a two-thirds majority.

The original bill, opposed by the White House, would have given Congress 60 days to review the deal.

Even if Congress were to approve the deal, it would have to vote separately to permanently lift congressional sanctions. (…)

EARNINGS WATCH

• 31 companies (9.7% of the S&P 500’s market cap) have reported. Earnings are beating by 4.5% while revenues have missed by 0.7%.
• Expectations are for a decline in revenue, earnings, and EPS of -2.9%, -4.1%, and -2.6%. Excluding Energy, growth would be 2.6%, 3.9%, and 5.6%, respectively. This excludes the likelihood of beats, which have come in above 4% historically. (RBC Capital)