Retail Sales Up 0.3% in April, Matching Expectations… The moderate growth rate followed disappointing sales in the first quarter.
What it means – Over the next several months we should see many articles wondering why consumers aren’t flocking to malls and online stores to spend their tax reform gains. We’ve discussed this several times this year, so no need to flog the subject again.
Expect moderate, underwhelming growth that will keep a lid on GDP growth and disappoint those looking for breakout numbers.
Housing Starts Down 3.7% in April, Reflecting Fewer Multifamily Starts… Single-family housing starts rose 0.1% to 894,000 units annually even as single-family completions dipped 4% to 820,000.
What it means – Multifamily housing starts are notoriously volatile, and don’t add near as many jobs to the economy as single-family starts. The fact that single-family starts remain on track is good news for the industry, even as completions add a bit of worry to a market struggling with a lack of inventory.
This keeps the same storyline in place – the real estate market doesn’t have enough homes for sale to satisfy buyers, and new homes won’t add enough inventory relieve the pressure on prices.
Industrial Production Up 0.7% in April… The business sector got into gear last month as business equipment volume jumped 1.2%, reflecting higher company investment.
What it means – Companies are using some of their tax savings to invest in their business, which is what should happen. But they aren’t using all of it. Many have announced stock buybacks and higher dividends.
In another part of the report, mining improved by 1.1%, showing that oil and gas companies are revving up their production in the face of higher energy prices. This trend should continue, and will push up capacity utilization, which reached 78% last month.
Oil Inventory in the Organization of Economically Developed Countries (OECD) at Three-Year Low… The International Energy Agency announced that the OECD collective oil inventory fell below the five-year average.
What it means – The factors affecting oil supply – the OPEC supply cut agreement and the drop in Venezuelan production – and continued rising demand are weighing on inventory. The potential for Iranian oil cutbacks are adding to supply concerns and giving oil prices a boost. We’re sitting in the mid-$70s, with Brent crude popping over $80.
Part of the reward for oil companies is showing up as increased investment. While not an American company, Royal Dutch Shell started work on a huge petrochemical complex in Pennsylvania. This is notable because it’s the first new facility in the U.S. since the 1960s. The new construction reflects industry confidence that the U.S. energy sector will grow for decades to come.
First-Quarter German GDP Up 0.3%, Slightly Below Expectations… European countries don’t annualize their GDP numbers. The annual rate would be 1.2%, down from 1.6% in the fourth quarter.
What it means – Slow GDP growth in the strongest country of the European economic bloc is raising questions about what the European Central Bank (ECB) will do. Since late last year, investors had expected the ECB to end its bond-buying program in September and to move its short-term deposit rate up from minus 0.40%.
Weak economic prospects, combined with modest inflation, could keep the ECB from changing its current programs. If the ECB stays the course, the euro will weaken and the U.S. dollar will strengthen, a trend we already see unfolding.
Japanese Economy Loses Steam… Japanese GDP dipped 0.6% on an annualized basis in the first quarter, down from a 0.6% gain in the fourth quarter.
What it means – The headline was that Japan suffered a drop after its longest growth streak in 28 years. What is more notable is that this “incredible run of growth” lasted a mere 24 months.
It’s more telling to say that after printing quadrillions of yen (yes, with a “q”) to buy government bonds, stocks, and anything else they could get their hands on, the Bank of Japan still couldn’t create moderate inflation in an economy weighed down by an aging population.
A full 28% of the Japanese population is over 65. There’s nothing on the horizon that will change this.
U.S. Birth Rate at Lowest Level in Over a Century… The birth rate among women 15 to 44 years old was 60.2 per 1,000 women, the lowest level since the U.S. began keeping records in the early 1900s.
What it means – Last year, 3.85 million babies were born. That’s two percent fewer than in 2016 and the lowest level since 1987. One big factor driving lower births is the falling rate of births to teenagers. Births to mothers under 20 fell 55% from the level in 2007, and is down 70% from the peak in 1991. Births to mothers of all ages dipped except those to moms between 40 and 44. Those birth ticked up a bit, but the numbers aren’t big enough to tip the scales.
Births in the U.S. turned up in 2014, but have since fallen for three straight years. The trend is worrisome because without more children we fail to replace workers and would-be parents aren’t compelled to spend. This is the same trap the Japanese fell into and it’s also ensnaring Germany. We may not end up the same way, but every year we put off more children we dig our economic hole a little deeper.
McLaren 720 S Found Wrecked in Nevada Desert… The $300,000, 720 horsepower supercar was found 70 yards off the road, abandoned. No wreck had been reported. The driver and passenger were eventually located. They had survived the crash, in which the car rolled at least once, and made their way to a local hospital with scrapes and bruises.
While they didn’t admit it, apparently, they were part of the Corsa West road rally, an unofficial, unsanctioned race across the country that involves high speeds and, apparently, dangerous driving.