Consumer Sentiment Research Notes

by Jim Baird on April 29, 2016

CaptureSentiment slips in April for fourth consecutive month

The mood of the U.S. consumer faltered in April, as their outlook for future economic conditions dimmed further.

The University of Michigan Consumer Sentiment Index dipped to 89.0 in April, declining moderately from a 91.0 reading in March. The result reinforced a similar downward trend in the Conference Board’s Consumer Confidence Index released earlier this week.

Sentiment has been edging steadily lower since the beginning of the year, having now declined for four consecutive months. At its current level, the index is at its lowest point since September of last year and is well below its level of 95.9 one year ago.

The underlying story is mixed. Consumers’ assessment of current economic conditions has been virtually unchanged in the past year, and actually improved in the past month. Solid labor market conditions, low gas prices, increasing wage growth, and the rebound in equity prices are likely supporting that view.

Conversely, expectations for the future direction of the economy continue to dim, as pessimism about the outlook for the economy continues to rise. As the likely nominees for each party in the upcoming Presidential election are becoming clear, there were indications that recent policy rhetoric may be a negative factor in the souring outlook.

As confirmed by yesterday’s report on first quarter growth, the economy slowed to start the year. Consumers appear to largely be shrugging that off, but remain more concerned about what the near-term future may hold. Nonetheless, consumer spending was a relative bright spot to start the year, and personal consumption is still projected to grow by 2.5% for 2016. Even if the business sector and trade remain weak, core household consumption and housing sector strength should be sufficient to sustain moderate growth in the coming quarters.

Q1 GDP Research Notes

by Jim Baird on April 28, 2016

CaptureUS economy slows sharply in Q1; consumer spending leads the way

The first report on the economy for 2016 confirmed that it faltered as widely believed, growing by a modest 0.5% during the quarter.

Spending in the consumer sector slowed, but remained the strongest contributor to growth and exceeded expectations. At a 1.9% increase, consumer spending grew at its slowest pace since the first quarter of 2015. Spending on services remained solid at a 2.7% gain, but spending on durable goods turned negative.

Conversely, housing activity accelerated briskly, growing at a nearly 15% pace. While still subject to adjustment, that gain represents the strongest quarter for housing growth since the fourth quarter of 2012.

The big drag occurred in the corporate sector, where the strong dollar and weak oil prices are still having an impact. Businesses continued to trim inventories for the third consecutive quarter. On average, those cuts have shaved about 0.4% off top line growth since last July.

Beyond inventory cuts, businesses also cut back on investment in equipment and structures. Energy sector investment had previously been a key driver of investment, and the collapse in the price of oil and the negative impact on energy sector earnings are keeping a lid on investment in equipment.

Although growth was weak to start the year, the soggy results are consistent with seasonal trends over the past decade. In eight out of the past ten years, GDP has come in weak for the first quarter and subsequently improved throughout the year. Expectations for growth for the remainder of the year remain bright in comparison to today’s release. The consumer sector appears to remain on a firm footing; solid labor market conditions, growing evidence of stronger wage gains, and low interest rates should support sentiment and provide fuel for spending.

The bottom line is that the today’s report confirms what was widely expected – the economy stalled sharply in recent months. Recent history suggests that it should be taken with a grain of salt when assessing the direction of the economy from here.  A weak second quarter result, on the other hand, would sound an alarm bell.

Market Perspectives (April 2016)

April 15, 2016

Executive Summary ​March brought relief from the relatively high level of volatility that characterized market activity through the first half of Q1. U.S. stocks responded positively, with mid-caps leading the way, followed closely by small caps and large caps. International equities were also up last month, led by a strong surge in emerging market equities. […]

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March’s CPI Research Notes

April 14, 2016

Consumer prices rise less than expected in March Headline CPI in March rose by a modest 0.1%, below expectations for a 0.2% increase based on the Bloomberg survey of economists. The core index edged higher by 0.1%, also falling short of an expected rise of 0.2%. Over the past year, the headline index increased by […]

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March Retail Sales Research Notes

April 13, 2016

Retail sales drop 0.3% in March vs. expected 0.1% gain Retail sales declined by 0.3% in March, falling short of expectations for a 0.1% increase. Updated February retail sales were flat – a weak result, but still representative of a modest upward revision to the originally reported decline of 0.1%. Over the past year, sales […]

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Economic Perspectives (First Quarter 2016)

April 13, 2016

The opening months of 2016  brought volatility to the capital markets, and with it, a renewed focus on the state of the economy – both domestically and globally. However, barring any unforeseen circumstances, the domestic outlook points to improving economic fundamentals, and talks of a potential U.S. recession are likely overblown. Read the full article>>

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Jobless Claims (week of 4.2.16) Research Notes

April 7, 2016

Jobless claims below 300,000 for more than a year; longest streak since 1973 Initial jobless claims fell to 267,000 for the week ended April 2, down by 9,000 from the previous week’s print of 276,000. Despite that decline for the week, the four-week average edged higher by 3,500 to 266,750. While some other gauges of […]

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Q4 GDP Research Notes

March 25, 2016

Q4 growth revised higher again to 1.4% The economy slowed late last year, but we now know that the reality was not nearly as bad as the perception at the time. Once again, it was the U.S. consumer that led the way.  Personal consumption growth slowed moderately, but still expanded at a solid 2.4% clip.  […]

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Jobless Claims (week of 3.19.16) Research Notes

March 24, 2016

Jobless claims rise moderately on week; 4-week average virtually unchanged Initial jobless claims rose to 265,000 for the week ended March 19, up from a downwardly revised 259,000 in the prior week. The four-week average was virtually unchanged at 259,750. Looking past today’s data, most recent evidence to a strengthening labor market after a soft […]

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Market Perspectives (March 2016)

March 17, 2016

Executive Summary ​The recent surge in market volatility that began mid-December persisted into February, as did market anxiety about the slowing global economy. Those concerns subsided in the latter half of the month, relieving some of the downward pressure on risk assets. U.S. stocks ended the month with mixed performance, with mid caps gaining 1.1% […]

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