U.S. Durable Orders Edged Up In March Demand for long-lasting factory goods improved modestly in March, a sign that the manufacturing sector is healing only slowly as business investment remains restrained.
Orders for durable goods—products designed to last at least three years, such as trucks and computers—increased 0.7% from the prior month, the U.S. Commerce Department said Thursday. It was the third straight month orders increased, but March’s gain was the weakest and below economists’ expectation for a 1.3% rise. (…)
Thursday’s report showed a closely watched proxy for business spending on new equipment, orders for nondefense capital goods excluding aircraft, rose 0.2% in March, continuing a trend of small increases in the category.
Orders for nondefense capital goods excluding aircraft rose 2.1% over the past three months compared with the first quarter of 2016. Total durable-goods orders were up 3.4% in the first three months of 2017 compared with the same period a year earlier. (…) (Table from Have Analytics)
U.S. Pending Home Sales Ease
The National Association of Realtors (NAR) reported that pending home sales slipped 0.8% ((+0.8% y/y) during March to an index level of 111.4 following a 5.5% rise. The decline followed a 5.5% February increase that was strengthened by warm weather. The index is reported on a 2001=100 basis.
The pending sales figures exhibited mixed performance across regions. The index in the Northeast declined 2.9% after a 3.4% February gain. In the West the index also fell 2.9%, reversing all of the prior month’s rise. The index in the Midwest eased 1.2% following an 11.5% rise to the highest level since last March. To the upside, the index for the South increased 1.2% to the highest level since March 2006.
U.S. first-quarter growth weakest in three years as consumer spending falters The U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending barely increased and businesses invested less on inventories, in a potential setback to President Donald Trump’s promise to boost growth.
Gross domestic product increased at a 0.7 percent annual rate also as the government cut back on defense spending, the Commerce Department said on Friday. That was the weakest performance since the first quarter of 2014.
The economy grew at a 2.1 percent pace in the fourth quarter. (…)
A measure of private domestic demand increased at a 2.2 percent rate last quarter. First-quarter GDP tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify. (…)
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, braked to a 0.3 percent rate in the first quarter. That was the slowest pace since the fourth quarter of 2009 and followed the fourth quarter’s robust 3.5 percent growth rate. (…)
U.S. labor costs accelerate in first quarter
The Employment Cost Index, the broadest measure of labor costs, increased 0.8 percent, the largest increase since the fourth quarter of 2007, after rising 0.5 percent in the fourth quarter, the Labor Department said on Friday.
Economic Growth Likely Stalled in First Quarter The government’s initial tally of first-quarter GDP is expected to show growth slowed to a crawl, suggesting investors’ hopes following Donald Trump’s election victory haven’t yet translated into real gains.
The U.S. economy has a habit of starting the year out sluggishly only to rebound in the spring and summer, and this year appears no different. Many economists believe there are flaws in how the government adjusts data for seasonal factors that might be understating growth, and the Labor Department has worked to improve its methods. Whatever the case, the underlying trend likely remains intact: 2% growth—not bad, but weaker than the more robust expansions of past decades.
The main factor behind the economy’s sluggish performance this winter is likely weaker spending by consumers. Some reasons are temporary: delayed tax refunds by the IRS, and lower utility bills due to warm weather. Others are less encouraging: Auto sales have also fallen, and higher inflation is offsetting much of Americans’ wage gains. (…)
This will help:
- Ready for lower retail gasoline prices in the US? They are coming. (The Daily Shot)
Even more so if food prices remain weak:
Euro, Bond Yields Lifted by Strong Inflation Data The euro and government bond yields in Europe jumped on surprisingly strong inflation figures, while stocks fell.
(…) Official figures released midmorning showed the eurozone’s core inflation rate—which excludes volatile food and energy prices—at 1.2%, the highest level since 2013. Analysts were expecting a rise of 1%. Headline inflation reached 1.9%, touching the European Central Bank’s target of slightly below 2%. (…)
What surprise? Here’s what I wrote in The Daily Edge of April 19:
Core prices have been very volatile in recent months in Europe: they declined at a 4.4% annualized rate between November and January but jumped at a 9.0% annualized rate in February-March. Check this out (MoM): Nov. to March: -0.1%, +0.4%, –1.4%, +0.3% +1.2%.
Here’s the data through April with revisions to prior months:
(MoM): Nov. to March: -0.2%, +0.4%, –1.7%, +0.4% +1.4%, +0.5%.
- Last 3 months annualized: +9.5%
- Last 2 month annualized: +12.0%
So:
“There is clearly a risk that we could stand at the June meeting with an ECB that changes its forward guidance in a more hawkish direction provided the cyclical situation looks good,” said Pernille Bomholdt Henneberg, chief analyst at Danske Bank .
Better not be short the euro if that happens.
Here’s Germany’s inflation (The Daily Shot):
Why Trump Decided to Back Off Nafta Threat Conversations with the Mexican and Canadian heads of state, along with a flood of calls from business executives, helped steer President Trump away from an idea that some of his advisers feared was an unnecessary threat.
- From the WSJ editorial:
(…) On Thursday morning President Trump tweeted out his account of the goings-on. The two trading partners had asked for a negotiation instead of U.S. withdrawal. Mr. Trump said: “I agreed subject to the fact that if we do not reach a fair deal for all, we will then terminate Nafta. Relationships are good-deal very possible!” (…)
Mr. Trump may think this is all part of a negotiation to get a better “deal,” but it isn’t clear there’s much better to get. Mexican tariffs on imports of U.S. agricultural products, and most other goods, are nearly zero. U.S. agriculture’s three biggest export markets are China, Canada and Mexico.
Other U.S. exporters to our Nafta partners similarly benefit from nominal tariffs on their products. That is why an official of the National Cattlemen’s Beef Association said Wednesday that terminating Nafta “is one of the most dangerous moves we can make at this time.”
Mr. Trump has his reasons for disliking Nafta, none of which are good. And if he isn’t careful, he could do great damage to much of the U.S. economy.
Next Tax Battle: Trump’s Bid to Ax a Favorite Blue State Deduction
The tax policy outline Mr. Trump unveiled Wednesday proposes repealing the deduction for state and local taxes, which lets individuals subtract their home-state levies from their federal taxable income. That move was a major shift for Mr. Trump, who previously had called for capping deductions but not killing the break.
What makes the latest proposal politically divisive—and could lead to a split inside the Republican Party—is that it would shift the tax burden from low-tax states such as Texas and Florida to high-tax states such as New York and New Jersey. Blue-state Democrats criticized the proposal, as expected, but Republicans from those states don’t like it either. (…)
Removing the deduction could raise more than $1 trillion over a decade, according to independent estimates, which would help offset the cost of GOP rate cuts.
The deduction, one of the largest breaks for individuals, saves taxpayers about $103 billion this year, according to the congressional Joint Committee on Taxation. That is $38 billion more than the mortgage-interest deduction and $46 billion more than the deduction for charitable contributions. (…)
Source: @NickTimiraos, @RichardRubinDC, @josephncohen; Read full article
Donald Trump is undermining his Treasury secretary
Larry Summers:
(…) President Donald Trump’s tax proposals were rolled out on Wednesday by the Treasury secretary Steven Mnuchin and National Economic Council director Gary Cohn. For reasons of long-run budget health, fairness, and economic impact I think they are extraordinarly ill-advised. (…)
Whatever its other virtues, distributional neutrality is not a feature of the plan announced on Wednesday. Indeed, between massive corporate rate cutting, big tax cuts for the highest income individual taxpayers, elimination of the estate tax and other incentives it is a certainty that the vast majority of the benefits of the plan will go to a very small fraction of tax payers. (…)
Republicans Put Off Obamacare Repeal Vote Again
Republicans vote-counters had been weighing whether to hold a vote this week, after conservative holdouts endorsed the bill following recent revisions. But a number of moderate Republicans remained opposed to the measure, and leaders were also distracted by the need to assemble votes for a stopgap measure to fund the government. The current spending bill runs out Friday.
When it comes to the health bill, conservative and moderate holdouts are still “struggling to get to yes,” Representative Tom MacArthur of New Jersey, the chief author of an amendment that is reviving hopes for the GOP’s health-care bill, said earlier Thursday.
“I think it’s close,” said MacArthur on whether enough votes to pass the bill will be found. “But I think there is a real chance of a vote.” (…)
Markets Think Trump Speaks Loudly But Carries No Stick The market reaction—or lack of it—to Donald Trump’s sketchy plan for tax cuts is part of a recognition that Washington remains stuck with politics as usual.
Trump’s Tariffs Won’t Work
Trump says he thought being president would be easier than his old life
“I loved my previous life. I had so many things going,” Trump told Reuters in an interview. “This is more work than in my previous life. I thought it would be easier.”
EARNINGS WATCH
- 271 companies (60.2% of the S&P 500’s market cap) have reported. Earnings are beating by 5.7%, with 77% of companies surpassing bottom-line estimates. Revenues are surprising by 1.1%.
- Expectations are for revenue, earnings, and EPS growth of 7.1%, 11.4%, and 13.3%, respectively.
- EPS is on pace for 15.1%, assuming a typical beat rate for the remainder of the season. (RBC)
Bankers Use Trump Rally to Cash Out Investors rushed into regional and community bank stocks after the U.S. election, encouraged by higher interest rates and potential regulatory relief. Top executives at banks used the rally to cash out.
Insiders at publicly traded commercial banks with a market value greater than $1 billion, but excluding the largest national banks, sold about $1.4 billion in their company stock between the election and the end of March, up 65% from the 10-plus months in 2016 before the election, according to an analysis by The Wall Street Journal.
The moves are in line with the behavior of insiders at the biggest U.S. banks, which was the subject of a Wall Street Journal article in January.
Executives at some of the country’s largest banks sold about $163.5 million worth of stock since the presidential election, more than in that same period in any year since before the financial crisis, according to an updated Wall Street Journal review of securities filings. (…)
Private-equity investors with board seats also sold. Four of them accounted for more than $310 million of the sales, or about 22% of the total, since the election. These same investors sold $46 million in 2016 before the election.
While it is relatively unusual for private-equity investors to have stakes in banks due to regulatory restrictions, some got involved during or shortly after the crisis. (…)
No Buyback, No Problem: Companies Trim Share Purchases in First Quarter
First quarter share repurchases among S&P 500 firms that have released data are tracking 24% lower than those companies reported a year earlier, according to S&P Dow Jones Indices. (…)
In a separate analysis, Bank of America Merrill Lynch equity strategists said this week that although buybacks among their corporate clients picked up in April, year-to-date activity is tracking at the lowest pace for any comparable period since 2013, and is down almost 30% from the same period a year earlier. (…)
Companies authorized $150.3 billion of share buybacks in the first three months of the year, down from $197.5 billion a year earlier, according to data from Birinyi Associates Inc. (…)
Exclusive: Trump says ‘major, major’ conflict with North Korea possible, but seeks diplomacy
(…) “There is a chance that we could end up having a major, major conflict with North Korea. Absolutely,” Trump told Reuters in an Oval Office interview ahead of his 100th day in office on Saturday.
“We’d love to solve things diplomatically but it’s very difficult,” he said. (…)