The Week Ahead for the U.S. Economy/Markets (29 April 2018)
Here’s our view on this week’s U.S. related data releases.
The most important economic data releases for the week commencing 29 April 2018:
- Core Personal Consumption Expenditure (consensus exp. 1.8%)
- Pending Home Sales (consensus exp. 0.6%)
- ISM Manufacturing PMI (consensus exp. 58.6)
- ADP Employment Change (consensus exp. 200K)
- Fed Interest Rate Decision (consensus exp. 1.75%)
- Trade Balance (consensus exp. -56.7B)
- Jobless Claims (consensus exp. 230K)
- Unit Labor Costs Preliminary (consensus exp. 2.9%)
- Nonfarm Productivity Q1 Preliminary (consensus exp. -1.5%)
- Markit PMI (consensus exp. 55.2)
- ISM Non-Manufacturing Orders (consensus exp. 58.4)
- Factory Orders (consensus exp. 0.9%)
- Nonfarm Payroll (consensus exp. 198K)
The preliminary GDP reading was the lowest in a year at 2.3% (2.9% Prev.) However, it was above the expectation of 2%.
Retail sales grew above expectation in March however this was boosted by a growth in purchases of motor vehicles. It is expected that this is likely to be a short-term trend as tariffs on steel and aluminium start to weigh on the purchasing power of these products. The tariffs have also caused manufacturers to increase short term supply above the production rate, which has caused shortages and pushed prices higher. A continued rise in retail sales was supported by the Redbook which increased 0.3% but is showing signs of weakening growth through April.
In March we had an increase in durable goods orders which was boosted by an increase in commercial plane orders. If we exclude transport (7.6%) and defence (2.8), orders barely changed. This was supported by factory orders which also rose primarily due to transportation equipment (7%). This could also only be a short-term trend in preparation for the higher costs of steel and aluminium from the tariffs.
The fed manufacturing survey from Richmond had a negative fall while Kansas survey grew, as businesses are optimistic with the current outlook on growth. However, the current situation with China has decreased profitability. Demand remains high and is only expected to be a short-term problem. Long distance shipments are also becoming a problem due to lack of available flatbed lorries.
Strong growth in manufacturing is supported by the flash Markit PMI beating the expectation due to high growth and output, leading to the highest rate of growth since 2014.
The labour market remains positive at the end of April with initial jobless claims falling 24K. The reading had stalled at the prior reading of 233K for 2 weeks. Hiring is one of the biggest challenges for businesses, especially in Midwestern states, where they are having to use multiple temp agencies and still unable to fill roles even with higher starting salaries. Wage growth in Q1 increased 0.8%.
The consensus for Nonfarm Payroll is 190k jobs added with an unemployment rate of 4%. The change in wages will be an important figure to keep an eye on, rather than being side-tracked by the headline jobs number.
Consumer confidence remained high in April with the consumer confidence index sitting just below February’s 18 year high. Short term expectations are also improving. Consumers who expect their incomes to decline fell to the lowest level since December 2000.
The housing market is especially strong posting good numbers across the board. We are seeing significant increases in new & existing home sales. As well as an increase in the price of homes up 0.6% this month (7.2% YoY). The S&P Case-shiller HPI has posted the sharpest climb in 4 years. Negative data did come from mortgage applications with a decline of 0.2%. However, applications to purchase a home remains unchanged with a fall coming from refinance.
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