--- title: "Monday Update: Spring’s Not Here Yet" description: Commonwealth's Brad McMillan recaps last week's disappointing reports and looks ahead to another busy week for economic news. image: https://blog.commonwealth.com/hs-fs/file-892407207-jpg/Images_Brad_IMO_Blog/Spring_2014/MarketOutlook_1.jpg --- [![The Independent Market Observer](https://blog.commonwealth.com/hubfs/IMO-Title-1.png "The Independent Market Observer")](https://blog.commonwealth.com/independent-market-observer) [![Commonwealth Financial Network](https://blog.commonwealth.com/hubfs/lockup_citron-1.png "Commonwealth Financial Network")](https://www.commonwealth.com/) - [Home](https://blog.commonwealth.com/independent-market-observer) - [About](https://learn.commonwealth.com/about/) ### ![print this page](https://blog.commonwealth.com/hs-fs/file-1376458285-gif/images/print.gif)Print # [Monday Update: Spring’s Not Here Yet](https://blog.commonwealth.com/independent-market-observer/monday-update-springs-not-here-yet) Posted by [Brad McMillan, CFA®, CFP®](https://blog.commonwealth.com/independent-market-observer/author/brad-mcmillan-cfa-caia-mai) Find me on: [LinkedIn](https://www.linkedin.com/in/bradmcmillancfa) [Twitter](https://x.com/BradMcMillanCFA) This entry was posted on May 2, 2016, 2:06:48 PM and tagged [In the News](https://blog.commonwealth.com/independent-market-observer/topic/in-the-news) [Leave a comment](https://blog.commonwealth.com/independent-market-observer/monday-update-springs-not-here-yet#comments-listing) ![monday update](https://blog.commonwealth.com/hs-fs/file-892407207-jpg/Images_Brad_IMO_Blog/Spring_2014/MarketOutlook_1.jpg?width=260&name=MarketOutlook_1.jpg "monday update")Once again, last week’s economic news was disappointing overall, with a few bright spots. In brief: - The housing reports were mixed, with new home sales declining but pending home sales increasing. - Business orders were simply bad, even with an increase in defense orders of aircraft that inflated the headline number. - Despite consumers’ growing incomes, they continue to worry and not spend. This weak performance was ratified by the GDP report, which showed growth down considerably in the first quarter from the prior one, and by the Federal Reserve, which hinted that it was more concerned about the U.S. economy. ##### Housing may be looking up On the heels of recent [weak housing results](https://blog.commonwealth.com/independent-market-observer/monday-economic-update-housing-weak-but-still-improving), last week’s new home sales figure followed suit, down 1.5 percent, to 511,000, from the prior month’s increase of 2 percent. In context, this was a relatively small miss (9,000 out of 520,000), and absolute sales levels remain healthy, but the lack of improvement validates the weakness of the starts and permits data from the prior week. On the positive side, the pending home sales report posted an increase of 1.4 percent, better than the expected uptick of 0.5 percent, suggesting the market may be turning. ##### Manufacturing . . . not so much Durable goods orders data was disappointing. The volatile headline figure, which includes aircraft, rebounded from a loss of 3 percent to a gain of 0.8 percent—much less than the expected gain of 1.9 percent—despite a substantial increase in defense aircraft orders for Boeing. The more representative core durable goods orders, which exclude transportation, also rebounded, moving from a loss of 1.3 percent to a loss of 0.2 percent, but still fell far short of the expected gain of 0.5 percent. Clearly, the manufacturing and industrial sector has not yet stabilized, despite encouraging survey results. ##### Consumers doing well but still not confident In line with the generally weak results, the Conference Board’s survey of consumer confidence dropped from 96.2 to 94.2, against expectations for a decline to 95.8. The weaker-than-expected results aren’t a total surprise, as gasoline prices have risen by more than 6 percent over the past months, and the Michigan confidence survey dropped by more. Notably, however, the decline was in expectations; *current* confidence actually rose, suggesting that consumer conditions remain positive. It’s also worth noting that, despite the decline, this indicator remains at a healthy level, signaling continued growth. The discrepancy between better current conditions and weaker confidence also showed up in the personal income and spending report. Income growth increased from 0.2 percent to 0.4 percent on a monthly basis, indicating continuing strength in the labor market, a very positive result. On the other hand, spending growth stayed constant at 0.1 percent, driven largely by a decline in motor vehicle sales and in utility spending. The trend of income rising faster than spending continues to slow current growth, but it also makes the growth we do get more secure. For the moment, though, the latest results point to more of the same, with consumers saving more than they are spending. ##### GDP growth slows The economic slowdown we've seen this year was confirmed by the GDP growth rate, which sank to 0.5 percent from 1.4 percent on an annualized quarterly basis, below expectations of 0.7 percent. GDP was dragged down by slower consumption growth and weak trade performance, as well as by continued weak business investment. While disappointing, this report includes facts already known and is a backward-looking indicator; growth is expected to accelerate in the remainder of the year. ##### Fed seems a little more concerned Last week also saw the April meeting of the Federal Open Market Committee, and as expected, interest rates remained unchanged. The meeting minutes, which are closely scrutinized for hints about the Fed’s mind-set, seemed to suggest that its worries about the rest of the world had moderated but that concern about the U.S. economy may have grown. Overall, the minutes indicated that, while there is a possibility of an interest rate increase, it is by no means certain or even likely. ##### Lots of data this week In a busy week for economic data, the major business surveys from the Institutes of Supply Management will be released, as will the international trade balance report and the employment report. The **ISM Manufacturing** report, which moved from negative (under 50) back to positive (over 50) last month, is expected to show a small pullback, from 51.8 to 51.5, but to remain positive, suggesting that the manufacturing sector continues to stabilize. With the weakening of the dollar and continued adjustment by industry, this would be reasonable—and good news. The **ISM Non-Manufacturing** report, which covers the service sector, is expected to increase again, from 54.5 to 54.8. Despite remaining in positive territory, the survey had slipped significantly over the past several months before rebounding last month. A further increase would signal that the majority of the economy continues to strengthen. The **international trade balance** is expected to shift significantly, with the U.S. trade deficit dropping from $47.1 billion to $41 billion on a decline in exports. Although an improving trade deficit is good news in many ways, in this case, it reflects a substantial decline in consumer goods imports, which ties in closely with weak consumer spending growth—not good news. Goods exports also fell, though by much less than imports, and this is also bad news. As with the manufacturing sector, however, the dollar’s recent reversal should mean this headwind is likely to abate over the next couple of quarters. Finally, the most important release this week will be the **jobs report**. Employment growth is expected to decline from 215,000 to 200,000, with the unemployment rate remaining stable at 5 percent. Average hourly earnings are expected to continue to grow at 0.3 percent for the month, in line with the previous month, and the average weekly hours worked to tick back up to 34.5 from 34.4. If expectations are met, this will be another strong report. 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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. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The Russell 2000 is a market-capitalization weighted index, with dividends reinvested, that consists of the 2,000 smallest companies within the Russell 3000 Index. It is often used to track the performance of U.S. small market capitalization stocks. 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 [FINRA](http://www.FINRA.org), [SIPC](http://www.SIPC.org) Please review our [Terms of Use](https://www.commonwealth.com/terms-of-use).  Commonwealth Financial Network®