The Independent Market Observer

Monday Update: Retail Sales Rebound

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Apr 23, 2018 12:32:50 PM

and tagged In the News

Leave a comment

Monday updateLast week’s reports gave us a look at pretty much the entire economy, including consumer spending, the housing market, and industrial production and manufacturing. In the week ahead, we’ll see data on consumer confidence, durable goods, and gross domestic product growth.

Last week’s news

The retail sales report, released on Monday, showed growth in the headline sales index. It went from a decline of 0.1 percent in February to a strong gain of 0.6 percent in March, fueled by a rebound in auto sales. Growth would have been even stronger, but a drop in gas prices pulled gas sales down. Core retail sales, which exclude autos and gas, remained steady at a healthy growth level of 0.3 percent for March, the same as February. This is a healthy report, showing that consumers continue to spend. Still, overall consumer spending growth slowed during the first quarter—to the weakest level in more than a year. Going forward, we need to watch whether the tax cuts and high confidence levels will continue to push spending growth back up. This month’s results suggest that may be the case.

Also on Monday, the National Association of Home Builders survey dropped from a strong 70 to 69, which is still healthy and continues to be positive for the industry. Housing starts, released on Tuesday, rose by more than expected: from 1.236 million in February to 1.319 million in March, well above the expected 1.27 million. This upside surprise is positive after significant volatility in recent months in both the multifamily and single-family sectors. Demand continues to be strong, although supply remains constrained, especially for existing homes.

Industrial production growth, also released on Tuesday, beat expectations. It moderated from an upwardly revised, and unsustainably strong, 1 percent in February to a healthy 0.5 percent in March, above expectations of 0.3 percent. This variance includes substantial weather-driven swings in utility production. But manufacturing output, which is a better economic indicator, came in below expectations. It declined from an upwardly revised 1.5-percent growth in February, largely driven by oil and gas production, to a disappointing 0.1-percent growth for March, below expectations of 0.4-percent growth. Given the upward revision in February, however, the final production level was close to expectations.

What to look forward to

This week’s economic news starts with housing. Monday’s existing home sales report came in better than expected. It showed that sales rose from 5.54 million in February to 5.6 million in March, continuing the recovery from a disappointing January. On Tuesday, new home sales are also expected to rise, from 618,000 to 625,000. Again, this would be a partial recovery from a significant drop late last year. If the numbers come in as expected, they would indicate a continued recovery in housing to its previous growth level.

Also on Tuesday, the Conference Board’s survey of consumer confidence is expected to drop again, from 127.7 to 126. Although this is still a very high level, confidence has been declining slowly from its recent decade-plus high. There also may be some downside risk to this number, given rising gas prices and recent stock market turbulence.

On Thursday, the durable goods orders report is expected to show a slowdown in growth from a very strong 3 percent in February to a still strong 1.1 percent in March, supported by rising aircraft orders and motor vehicle sales. Core orders, which exclude transportation, are expected to slow from 1-percent growth in February to 0.4-percent growth in March. These numbers would represent a full recovery from January’s decline. Further, they would indicate that business investment, although slowing, continues to expand.

Finally, on Friday, we’ll see the first estimate of gross domestic product growth for the first quarter. Growth is expected to drop from 2.9 percent in the last quarter of 2017 to 2.1 percent for the first quarter of 2018 due to slower increases in household spending and business investment. It’s possible that remaining seasonal effects could push the number down even more, as has happened in the past, which would suggest faster growth ahead.

Have a great week!


Subscribe via Email

Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®