It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday.
Overall, corporate earnings estimates are improving, but the economy hasn’t been as consistent. Let’s take a look at the latest headlines.
Good News: Beige Book
The Federal Reserve released its April Beige Book survey, which reported modest economic growth in all twelve of its districts. Notably, employment and wages continued to rise, and the labor market remains tight.
Bad News: Retail Sales
Another report that I keep a close eye on is the monthly retail sales report released by the Commerce Department. After all, consumer spending accounts for nearly two-thirds of the overall economy. And the past two retail sales reports haven’t inspired much confidence. In March, retail sales fell 0.2%, well below economists’ expectations of flat sales. To add insult to injury, February retail sales were revised lower, from a previously stated 0.1% increase to a 0.3% decline.
The past two months have been the weakest for retail sales since 2015. Some economists believe that a delay in federal tax refunds may be the culprit. As a result, economists have been revising their first-quarter GDP estimates lower. The Atlanta Fed is now estimating that first-quarter GDP will grow at just a 0.9% pace. This represents a substantial slowdown from the 2.1% growth rate reported for the fourth quarter.
Push: Inflation and Treasury Yields
Meanwhile, inflation is moderating, according to the latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports. In March, consumer prices fell 0.3%, which was much lower than economists’ expectations of a 0.1% decline. A 6.2% drop in gasoline prices and a slight drop in rental costs were largely responsible for the decline. Excluding food and energy, the core CPI still fell 0.1%. Wholesale prices also declined 0.1% in March. Wholesale gasoline prices, which fell 8.3%, was again the main culprit. Excluding food, energy and retail trade margins, the core PPI climbed just 0.1%.
Over the past twelve months, core consumer prices have risen 2.0%, while core wholesale prices have increased 1.7%. What this means is that inflation is starting to cool. As a result, Treasury yields have been meandering lower. Last Monday, the 10-year Treasury bond yield fell to 2.16%. At the time of writing this, the 10-year Treasury yields just 2.22%.
This last part is good news for the Fed, because its interest rate policy appears to be driven largely by market rates. I expect that the Fed will continue to promote a Goldilocks strategy, one that’s "not too hot, nor too cold." The Fed’s Goldilocks strategy is designed to promote steady economic growth and stabilize financial assets, which is good for the overall stock market. So it’s actually good that the economy isn’t running too hot right now.
That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.
Have a great weekend,