Consumer Sentiment Research Notes

by Jim Baird on July 17, 2015

CaptureSentiment edged lower in July, but remains constructive

The University of Michigan Consumer Sentiment Index edged lower in July, coming in at 93.3 and falling short of economist expectations for a 96.0 according to Bloomberg.

The decline was a result in somewhat diminished assessment of the two underlying components, as consumers were moderately less positive about both current economic conditions and expectations for the coming months.

Despite the decline, consumer sentiment remains relatively high, reflective of continued improvement in job market conditions, limited inflation, and an economy that appears to have re-gathered some momentum after stumbling out of the gate early this year.

Recent stock market volatility, increasing gas prices, and the most recent tensions around the ongoing debt crisis in Greece were likely the key drivers of the drop. Most economic data in the U.S. has been pointing toward a recovery in growth in recent months, which would otherwise be expected to be supportive of the mood of consumers. With recent tensions in Europe and capital market volatility subsiding, further erosion in sentiment may be limited, absent the emergence of other factors.

June retail sales were a disappointment, raising some concerns about how tightly consumers are watching their spending habits. Wage growth remains lackluster, although some data points to the potential for wage pressure to increase if job creation continues at its recent clip and the unemployment rate continues its gradual decline.

Stronger wage growth, coupled with a positive outlook on economic conditions and their personal financial situations, should be an effective combination to drive consumer spending.  Should a more persistent “virtuous cycle” of wage growth, confidence, and spending develop, top-line economic growth should benefit as well, providing an easier path for the Fed to begin raising interest rates after a series of false starts and delays in recent years.

To see news coverage featuring Jim’s comments, please visit the following sites:

Consumer Confidence Slips in July; ‘Virtuous Cycle’ Has Yet to Develop (Barron’s)

Consumer sentiment drops from five-month-high (MarketWatch)

June Retail Sales Research Notes

by Jim Baird on July 14, 2015

CaptureJune Retail Sales Fall Short of Expectations, Declining 0.3%

Retail sales declined by 0.3% in June, falling well short of expectations for a modest 0.3% rise. Excluding motor vehicle sales, sales still dipped by 0.1%. May retail sales were also revised lower to 1.0%, trimming the preliminary result fractionally, but still indicating a solid advance for the month.

Sales on higher ticket items were particularly soft, as the 1.0% drop in vehicle sales in particular weighed on top-line sales for the month.

After a sluggish start to the year, exacerbated by harsh winter weather conditions, retail sales had surged in May, contributing at the time to the belief that the economic soft patch was behind us and boosting expectations for second quarter growth.

Today’s report will take the bloom of the rose a bit, and is modestly concerning – but only modestly.

The weaker-than-expected results for June may prod economists to trim expectations for second quarter growth.

Nonetheless, recent employment gains and strong consumer confidence should support spending gains in the coming months. Other economic data in recent months have largely surprised to the upside, so it would appear that the economy is still returning to trend growth after disappointing early this year.

Taken in isolation, the soft retail sales report will be read by the market as evidence at the margins that the Fed can hold off longer on announcing a rate hike.  However, most of the voting members of the FOMC continue to point to a rate hike before the end of the year, contingent upon the strength of incoming data.  If the economy improves as they have projected, a move still seems likely.  If the economy fails to reach those expectations, we could end the year at a similar point to where we started it:  looking toward a rate hike somewhere further up the road.

Economic Perspectives (Second Quarter 2015)

July 13, 2015

After a sluggish start to the year, several key sectors of the economy – including employment, manufacturing, and housing – have rebounded and appear supportive of further growth.  In turn, early estimates of second-quarter GDP suggest the economy is likely to grow near 3%. Read the full article>>

Read the full article →

Market Perspectives (July 2015)

July 13, 2015

Executive Summary Global markets reacted to the latest developments in the ongoing Greek debt situation at the end of June, as the country missed an IMF payment and concern over a potential default grew. The Fed indicated it is still in “ wait and see mode ” on when it will raise interest rates, but […]

Read the full article →

Special Commentary

July 10, 2015

Volatility Persists on Greece and China Concerns Volatility remains elevated across global equity markets, taking the form of a modest sell off in the U.S. Two primary issues are at the center of it all: (1) the latest developments in Greece’s ongoing debt saga, and (2) concerns of slower economic growth in China contributing to […]

Read the full article →

Jobless Claims (week of 7.4.15) Research Notes

July 10, 2015

Jobless claims up 15,000 last week to highest level since February Initial jobless claims rose to 297,000 for the week ended July 4, up 15,000 from the previous week’s revised print of 282,000. The four-week moving average also moved higher to 479,500, an increase of 4,500 from the prior week. That measure, which helps reduce […]

Read the full article →

June’s Employment Situation Research Notes

July 6, 2015

Jobless rate falls to 7-year low despite soft payroll growth The jobless rate dropped to 5.3% in June, its lowest point in over seven years. While that may be the headline that captures attention, the underlying story was a bit softer than anticipated. The jobs report was solid, but still a bit of a disappointment, […]

Read the full article →

Special Commentary

June 30, 2015

Greece:  Turning Point or Another Bump in the Road? The ongoing debt negotiations in Greece hit an impasse this past weekend, after more than five years of proverbial “kicking the can” down the road. The tone of rhetoric had escalated in recent weeks before negotiations came to a halt over the weekend. The Greek government […]

Read the full article →

Q1 GDP Research Notes

June 26, 2015

Q1 GDP estimates raised to -0.2% as expected The final estimate of first quarter GDP suggests the economy contracted by 0.2%, compared to the previously estimated decline of 0.7%.  The modest improvement was not surprising, as the report was in line with expectations. While consumer spending grew in the first quarter, spending on goods ground […]

Read the full article →

Market Perspectives (June 2015)

June 22, 2015

Executive Summary Volatility remained elevated during May, particularly within fixed income and international equity markets. U.S. small caps outperformed both mid caps and large caps during the month, though mid caps continue to hang on to the larger gain year to date. International equities declined during May, after delivering strong gains over the past few […]

Read the full article →