U.S. Fourth-Quarter GDP Increased 2.6%… The report beat the lowered expectation of 1.8%, helped by consumer spending and business spending.
What it means – Economic reports showed continued weakness at the end of the fourth quarter, which prompted many – including us – to forecast weak GDP growth. The actual report, which the government released a month late due to the government shutdown, showed resilience. Still, 2.6% isn’t going to set the world on fire, and it reveals that GDP growth continues to slide after peaking in the second quarter due to tax reform.
More recent economic reports, from durable goods to retail sales, show that the fourth quarter ended on a down note and 2019 started the same way. Don’t expect the economy to bounce back, the most likely scenario is that we’ve returned to our “muddle through” economic ways.
Trump Will Delay Higher Tariffs on Chinese Goods… Citing recent progress in the trade negotiations, the president said on Sunday that he would be comfortable extending the deadline for higher tariffs from March 1 at midnight to a later date.
What it means – The investing world breathed a small sigh of relief and the equity markets moved up, but not much.
By Tuesday, the bounce was over, and by Wednesday investors had moved on to other things, like the Michael Cohen testimony and the increased tensions between India and Pakistan. The small bounce from the trade talks lends credence to the notion that when a deal is finally signed we’ll probably get a bit of positive reaction, but not much. Most of the goods news appears to be priced in, and we have many other headwinds facing the economy and the markets.
Britain’s Prime Minister Will Consider Delaying Brexit if Her Compromise Is Not Passed… May announced that she would push for a vote on her plan, but if that fails she would call for a vote on a hard Brexit, and if that isn’t what Parliament wants then she will ask for a vote on delaying the country’s exit from the European Union.
What it means – The move sent the British pound sharply higher because it gives the UK more time to find a structured way out of the economic bloc. A hard Brexit would bring up many unknowns from trade arrangements to the border situation between Northern Ireland and Ireland. Barring a compromise, a delay looks like a welcome option. The news gave European investors something to cheer, but then the Indian-Pakistani situation took away the good vibes.
Britain is still likely to leave the EU, which will disrupt trade a bit and diminish the power of the economic bloc. Look for the euro to remain under pressure, especially as EU GDP slows down.
December Housing Starts Down 11.2% to the Weakest Level Since September 2016… Single-family housing starts fell 6.7%, while multifamily starts dropped 20.4%.
What it means – Permits rose a touch, but that’s not much consolation for the weak report. These numbers won’t help the housing market where sellers and buyers appear to be in something of a standoff. Buyers aren’t rushing in and snapping up homes as we saw in last week’s existing home sales numbers, but builders aren’t bringing a lot of inventory to market.
So far, the outcome is flattening prices and dwindling activity, which will trickle down to home renovation companies and other industries that rely on home sales.
S&P/CoreLogic Case-Shiller 20-City Home Price Index Up 4.2% in December over Last Year… The growth rate missed the expectation of 4.8% and is the slowest rate since November 2014.
What it means – This is no surprise, it’s part of a long trend of slowing price growth. Interestingly, prices in San Francisco have fallen for three months in a row, and prices in San Diego continue to fall as well. Prices in Seattle and L.A. are flat.
December Factory Orders Up 0.1%, Well Below Expectations of 0.6%… The slight gain comes on the heels of the 0.5% drop in orders for November.
What it means – Things don’t get better when you look under the hood. Stripping out transportation (cars and airplanes), orders fell 0.6% after the 1.3% drop in November.
Orders for core capital goods, a proxy for business spending, fell 1.0%. Considering corporate forecasts for tepid growth in 2019, these numbers make sense, but they call into question recent strength in the equities markets. If the economy as returned to days of mediocre growth as evidenced by factory orders and other metrics, why are stocks nearing record highs? A better question might be, will equities remain so high?
Supreme Court Has the Chance to Narrow the Reach of Government… It’s called the Auer Defense. It’s not sexy, but it touches all our lives. A previous Supreme Court ruling called for giving government agencies “controlling weight” when they interpret vague laws. This effectively made government agencies lawmakers because they could determine the extent of a law and how it was to be enforced, and few government agencies try to limit their own power.
A case about to come before the court, Kisor v. Wilkie, asks whether government agencies should be given such deference. With new justices Kavanaugh and Gorsuch on the court, there is a good chance this precedence will be overturned. It can’t happen soon enough.
Data supplied by Dent Research/Delray Beach Publishing
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