U.S. Attorney General William Barr Released Redacted Version of Special Counsel Robert Mueller’s Report… As Barr noted in a summary at the end of March, the report finds no evidence of collusion between the Russians and the President or any American to affect the 2016 Presidential election. Barr found no evidence in the report that the president obstructed justice by hindering the investigation. Though Mueller did leave the question of obstruction open to congressional interpretation.
What it means – The report will be political fodder for the next 20 months, but it didn’t move the needle in the equity markets, which is a good thing. It shows that investors correctly anticipated what would come of releasing the report: not much.
Industrial Production Off 0.1%… Led lower by manufacturing, industrial production slipped 0.1%, missing expectations of 0.3% growth.
What it means – Manufacturing fell 0.3% in March, after dropping 0.4% in February. That’s not good. Consumer goods were also down for the month, off 0.2%.
But it’s not all bad news. Business equipment rebounded 0.4% after falling 0.8% in February, and capacity utilization, ticked up 0.6% to 78.8%. Before 2008, capacity utilization averaged over 80% during economic expansions. But during this era of muddled growth, we haven’t been able to get above that key level.
Overall, the numbers show that the U.S. economy remains steady, albeit at a very low level of expansion. We might be the envy of the developed world when it comes to growth, but that’s not a very high bar.
March Retail Sales Up 1.6%, Well Above 0.8% Estimate… Vehicle sales, up 3.3%, drove the numbers higher. Excluding autos and gas, sales increased 0.9%.
What it means – The strength runs across sectors, including non-store retailers and restaurants. The only group left out are department stores, which surprises no one. The month’s retail sales show that consumers bounced back in the last month of the first quarter, which should give GDP growth a bit of a boost. The Atlanta Fed’s GDPNow forecasting model shows first-quarter GDP growing 2.8%, more than 2% higher than the forecast a month ago.
If first-quarter GDP prints above 2%, it will give the equity markets a tailwind that could push the indices up several points higher. This gives more credence to Harry’s Dark Window forecast, which expects strong growth just before the markets roll over.
U.S. Retailers Announce More Store Closings So Far in 2019 Than in All of 2018… Led by Payless, retailers have announced 5,994 store closings this year, compared with 5,864 in all of 2018.
What it means – Call it the changing face of retail. We know that consumers are spending, but it’s a matter of where they go to part with their cash or credit.
E-commerce continues to grow, and Dollar General is adding several hundred locations this year, but the scales tilt to fewer retail locations with stores like Payless, Gymboree, JCPenney, and Signet Jewelers shrinking their footprints. The moves will cut out some retail employment opportunities and hurt shopping malls.
Housing Starts Essentially Flat in March… Following down months, the numbers were the weakest since May of 2017, and are off 14.2% year over year.
What it means – New homes represent just 10% of the annual residential real estate market, but they’re a good barometer of how industry professionals view the current situation. Clearly, homebuilders are pessimistic about real estate.
Not only are housing starts falling, but also permits are dropping. New home permits fell 1.7% and are now 7.8% lower than at this time last year. Housing starts are particularly volatile and subject to weather, so it’s possible the numbers will bounce back in April. Possible, but not likely.
Chinese First-Quarter GDP Expanded 6.4%… The growth rate slightly beat expectations and puts the country on pace to grow at the slowest rate since 2009.
What it means – Who would have thought that the Chinese economy would grow by the exact amount that the Chinese government had forecast? What are the odds? Given that the government controls all aspects of the country’s economy, including statistical compilations and releases, the chances were pretty good that China would meet the forecast.
But there are other indications that things aren’t so rosy. The central government is encouraging local governments to provide more financing for economic projects, which is odd because the central government has spent several years trying to reduce public debt levels. The about-face makes it look like officials are worried about a general slowdown.
But the solution might just aggravate the problem. Adding more local debt today for capital projects such as infrastructure and power generation will only create more headaches down the road for local governments that are strapped for operating cash. Local governments generate much of their income by selling land for development, a transactional business with a finite lifespan. Eventually the development boom will end, and the debt will come due. The only question is if the central government will step in and save the investors who purchased the local debt.
Bank of Japan (BoJ) Expected to Report Weak Inflation… In spite of printing trillions of yen, the BoJ is expected to report that the country will still fall short of the 2% inflation goal, and that inflation will remain weak for at least three years.
What it means – The BoJ might not be able to manufacture inflation, but they definitely get an “A” for effort. The central bank has printed – and spent – so much yen that it now owns 43% of all Japanese government bonds outstanding, an amount that surpasses annual GDP. When the BoJ ran out of bonds to buy, it started picking up stocks, and is now a top 10 stockholder in 49.7% of all companies in the first section of the Tokyo Stock Exchange.
Stockton, California Rolls Out Universal Basic Income Program… The struggling California town known for going bankrupt began sending $500 per month to 130 recipients. Officials hope the funds will improve the lives of the recipients through better health choices, less anxiety, more time with family, or even giving them the opportunity to pursue new businesses. 25 of them will record how it affects their lives during the three-year program. The recipients don’t have to qualify or maintain any status, such as drug-free.
It’s unclear what Stockton will do with the results. The program is being underwritten by grants. Beyond establishing that free money from a grant with no strings attached is attractive, there aren’t many metrics on which to judge the program.
Notably, Finland recently ended its large universal basic income pilot program early because the results were disappointing. While recipients enjoyed the extra cash, it made them no more likely to take lower-paying jobs or pursue business interests than the control group. And it was expensive.
“…collectivism is antithetical to human nature, and destined to fail, as Plato’s student Aristotle observed in 350 BC: “That which is common to the greatest number has the least care bestowed upon it.” But to this day, many still fail to grasp the “tragedy of the commons.”
Data supplied by Dent Research/Delray Beach Publishing
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