Monday Update: Weaker Than Expected

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Apr 18, 2016 12:05:22 PM

and tagged In the News

Leave a comment

monday updateLast week’s economic data was unexpectedly weak, with disappointing news on both retail sales and industrial production. Although forward-looking indicators are improving, the past week’s numbers suggest that the economy hasn’t yet moved beyond the slowdown.

Last week’s news

Consumers remain cautious. U.S. retail sales for March softened across the board:

  • The headline retail sales number declined 0.3 percent, down from a prior decline of 0.1 percent and well below expectations of a 0.1-percent gain.
  • The decline wasn’t totally unexpected, as motor vehicle sales were known to have dropped; retail sales excluding autos were much better, with a 0.2-percent gain and an upward revision to the previous month, from a 0.1-percent decline to flat. Even this, however, fell below expectations of a stronger 0.4-percent gain and owed a lot to an increase in the price of gasoline.
  • Retail sales excluding autos and gas were up by 0.1 percent—down from the previous month’s gain of 0.6 percent, which was revised up from 0.3 percent. The upward revision provides quite a bit of cushion to this month’s data, suggesting that growth was healthier for the two-month period than for last month alone.

Though not great, the news isn’t as bad as it looks. Auto sales were down from very high levels and remain at very high levels, so some degree of pullback isn’t necessarily a disaster. Other, more inclusive spending indicators are also more positive. Overall, however, slowing sales growth suggests that consumers are still worried and unwilling to spend more.

The University of Michigan Consumer Sentiment Index also reflected weaker consumer demand. With a surprising drop from 91.0 to 89.7—the fourth decline in a row, to the lowest level in a year—consumers clearly aren’t feeling any better. From a consumer perspective, the slowdown is continuing.

Industrial production also disappoints. Although there have been signs of stabilization, in line with recent data and the latest ISM Manufacturing survey, production surprised to the downside. It dropped by 0.6 percent, continuing a decline of 0.5 percent the previous month, which was revised downward to a loss of 0.6 percent. The slide reflects the continued downturn in energy production activity, as well as weak utility production. Actual manufacturing also disappointed, with a decline of 0.3 percent, reversing hopes for stabilization.

Inflation remains slow. In the wider economy, consumer prices increased by less than expected, from a monthly decline of 0.2 percent to an increase of 0.1 percent, dropping to an annual increase of 0.9 percent on a headline basis. Despite recent increases, gasoline prices are still about 20 percent lower than they were last year, which continues to hold down the annual inflation rate. Core prices, excluding food and energy, grew more slowly, with the monthly rate down from 0.3 percent to 0.1 percent, and the annual rate down to 2.2 percent. Slower inflation trends are likely to keep the Fed from increasing rates in April.

The week ahead

The limited data scheduled for release this week revolves around housing:

  • The National Association of Home Builders survey is expected to improve slightly, rising to 59 from 58.
  • Housing starts are expected to remain relatively stable at around 1.17 million.
  • Sales of existing homes are expected to rebound by 3.5 percent to an annual rate of 5.26 million.

If these numbers play out, they will suggest that at least one component of the economy continues to be reasonably strong, despite the ongoing slowdown. 

Have a great week!

5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Subscribe via E-mail

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 into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) 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.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at 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®