Fed’s Beige Book: Shutdown Slowed Economic Activity in Some Areas Ten of the Fed’s 12 regional districts reported economic output expanded at a ‘slight-to-moderate’ pace in recent weeks

The report was based on information collected through February 25. The Philadelphia and St. Louis districts reported flat economic conditions.

About half of districts noted that the partial government shutdown in December 2018 and January 2019 held back growth in a variety of sectors, including auto sales, tourism, and retail. (…)

Still, more broadly, businesses in most districts reported employment increased at a modest to moderate pace. (…)

The beige book showed wage offerings continued to increase for both high- and low-skilled openings, with a majority of districts reporting moderately higher wages overall. In addition, about half of the Fed’s districts reported rising costs for benefits, such as bonuses, vacation time and relocation assistance.

The Fed said some Cleveland-area construction firms were granting large, “retention-focused merit increases” to some employees, while another business in the area said it “now offers raises every six months instead of every 18 months,” according to the report.

Meanwhile, businesses reported prices continued to rise at a modest-to-moderate pace. (…)

I was particularly interested in how the various Fed districts would characterize retail sales in their respective regions. Sales were pretty soft, on balance, across the USA with many districts referring to bad weather and the shutdown. But the consumer sector is not falling apart, just yet anyway.

• Boston: Retailers reported moderate increases in sales, and restaurant sales were also up. Retailers contacted for this round reported that on a year-over-year basis, comparable-store sales were up by mid-single-digit percentages.
• New York: Retail sales were mixed but sluggish, on balance. A major retail chain noted that sales were well below plan in January and down from a year earlier before rebounding modestly in early February; the weakness was partly attributed to adverse weather and the government shutdown. Reports from retailers in upstate New York were more upbeat, characterizing sales activity as solid.
• Philadelphia: nonauto retailers reported slight gains in the new year.
• Cleveland: Retailers reported slightly softer demand following the strong holiday season.
• Richmond: Fifth District retailers reported mixed conditions in recent weeks. Many retailers saw a drop in business, which resulted from bad weather, while others struggled with continued cost increases due, in part, to tariffs.
• Atlanta: District retailers reported flat sales growth since the previous report.
• Chicago: Consumer spending fell modestly over the reporting period. Nonauto retail sales decreased modestly, with declines in the furniture, appliances, apparel, and home improvement sectors outweighing increases in the hardware, lawn and garden, and personal services categories. Numerous contacts attributed slower sales to the harsh winter weather that occurred over the reporting period.
• St. Louis: Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer activity since the previous report. January real sales tax collections increased in Kentucky, decreased in Missouri, and were flat in Arkansas and Tennessee relative to a year ago. Retailers in West Tennessee reported mixed activity, and contacts in Missouri indicated that poor weather negatively impacted sales.
• Minneapolis: Consumer spending was mixed since the last report.
• Kansas City: Retail sales increased slightly in late January and February and were moderately above year-ago levels.
• Dallas: Reports on retail spending were mixed, though overall, sales expanded modestly. Some retailers noted a slight uptick in sales activity following the end of the government shutdown. By contrast, others said unfavorable weather conditions and a higher cost of credit slowed sales.
• San Francisco: Sales of retail goods expanded modestly.

CEOs tell Trump they are hiring more Americans without college degrees Chief executives of major companies said at a White House forum on Wednesday that they are hiring more Americans without college degrees as they search to find increasingly scarce applicants for open jobs.

U.S. Trade Deficit in Goods Hits Record

The deficit in goods grew 10% last year to $891.3 billion, the widest on record, according to Commerce Department data released Wednesday. U.S. trade gaps with China and Mexico, already the nation’s largest, reached new records.

The picture looked less dire when services including tourism, higher education and banking are counted, though this deficit still deteriorated markedly. With services included, the trade gap grew 12% last year to $621 billion, the widest since 2008.

Fast economic growth, driven in part by fiscal stimulus, led to a 7.5% increase in imports last year, marked by increased spending on consumer goods, industrial supplies and capital goods. Exports grew too, but by 6.3% and from a lower overall level. (…)

The deficit widened by $44 billion to $419 billion in 2018. (…) The gap widened by $18 billion with the EU and by $11 billion with Mexico. China, the EU and Mexico account for about 54% of U.S. goods imports but made up 86% of the increased deficit. (…)

The overall monthly trade gap in December was the widest since 2008, jumping 19% from the prior month to a seasonally adjusted $59.8 billion. (…)

RISK MANAGEMENT

Why Wall Street bulls are becoming endangered Investors build up cash levels amid fears that near-record US expansion may end soon

The FT reports on the Bank of America’s latest investor survey which reveals that fund managers are the gloomiest since 2008. They have trimmed their exposure to US stocks to the lowest point in 9 months and let cash reach its highest portfolio weight since the depths of the financial crisis in January 2009. Over a third think that the S&P 500 has already seen its peak and are thus not preparing to put their cash to work anytime soon.

The most interesting part of the FT article was about how fund managers tend to manage their own personal risk while managing client portfolios. “(…) being bearish and wrong is often seen as more acceptable than being bullish and wrong. The former are often portrayed as merely conservative and cautious investors, while the latter are cast as feckless idiots.”

This chart from CMG Wealth suggests it is time to put cash to work:

13/34–Week EMA Trend Chart: Buy Signal – Bullish for Stocks

FYI, in reference to the blue arrows:

• in the spring of 2003, the Rule of 20 P/E was 20.0, earnings were rising and inflation declining. The Rule of 20 Strategy went from 100% cash to 90% equity in February 2003 but pared it down to 50% in June. It raised it to 90% in July 2004.
• in mid-2009, the Rule of 20 P/E was 16.3. earnings were totally confusing but stabilizing and inflation was declining. The Rule of 20 Strategy went to 100% equity in November 2008 and kept it there until May 2016.
• in early 2012, the Rule of 20 P/E was 16.0, earnings were rising and inflation declining.
• in the spring of 2016, the Rule of 20 P/E was 20.0, earnings were declining and inflation stable.
• currently, the Rule of 20 P/E is 19.5, earnings are rising and inflation is stable. The Rule of 20 Strategy is 100% equity since December 26.

Understand that this is not meant to be investment advice. I am just laying out some facts for your consideration. (This is my own risk management part .)