LSA Connect

Economic Update:

It was a busy economic week—particularly in terms of housing and inflation indicators.

(0) The March Consumer Price Index declined -0.2% on a headline level, which was lower than the flat reading expected.  The core CPI, which excludes food and energy prices, rose +0.11%, which was below the forecasted +0.2%; so this, too, was tempered.  The primary difference between the two measures was the -4% decline in seasonally-adjusted gasoline prices during the month, while the core figure was affected by a -1% decline in apparel prices (which sheds additional color on the decline in retail sales on the month) and fraction of a percent rise in owners’ equivalent and primary residence rental measures.  On a year-over-year basis, headline and core CPI rose +1.5% and +1.9%, respectively, which are both in line with continued subdued inflation pressures.

(+) Housing starts rose +7.0% for March, which strongly outperformed expectations of a +1.4% gain and came on top of a similar gain for Feb. (based on an upward revision from the original +0.8% to an updated +7.3%).  Single-family starts fell -5%, but multi-family led the way with a +31% gain—then again, both of these measures tend to be volatile month-to-month as we all know.  On a year-over-year basis, total starts are up an astounding +47% (the single-family portion of which was up +29%).  Building permits fell -3.9% relative to a forecasted gain of +0.3%.  Continue reading →

Economic Update

(-) Retail sales for March came in weaker than expected, down -0.4% on a ‘headline’ level as opposed to consensus expectations of a flat reading.  The biggest impacts resulted from a -0.6% drop in auto sales and a -2.2% drop in gasoline sales (is that really bad news?).  Removing auto sales from the equation didn’t change much, with the same -0.4% on identical flat expectations.  The ‘core’/control component experienced a different result, but same magnitude, falling -0.2% versus a forecasted gain of +0.2%.  The latter piece, which excludes several items that tend to be more volatile (such as the auto, gasoline and building materials components) also saw weaker numbers from more stable demand areas such as electronics, department stores and sporting goods, although personal care also dropped a bit.  Why did this happen?  Perhaps some seasonal adjustments, a dose of bad weather and an especially early Easter holiday may have played a role.  These seem small, but it’s things like this that can alter the numbers by as much as a few tenths of a percent—especially in heavily-populated areas where shoppers are concentrated.

(0) Inventory results were mixed for February.  Business inventories rose +0.1%, which lagged the forecasted +0.4% level.  Retail inventories were the primary driver, while auto parts also rose; the ex-auto retail measure, however, was up a bit more, at +0.4%.   Wholesale inventories, by contrast, fell -0.3% month-over month as opposed to an expected +0.5% gain.  Non-durable goods were the catalyst. Continue reading →

The chart of the week looks at the various quantitative easing programs and how they have impacted the markets.  It also demonstrates that when these programs end investors Continue reading →

It was a downbeat week, at least relative to many so far this year, but we knew there needed to be a pause in the flurry of good news at some point. This did not come as a drastic surprise, as a few positive factors have begun to even out during the last few months and the sequester impact may have started to inch into the underlying data somewhat.

(-) The ISM manufacturing survey came in weaker than expected, which affected market sentiment due to the ISM’s broad following. The index fell to 51.3 compared to a consensus expectation of 54.0, as several underlying components dropped—such as new orders, production as well as inventories. However, the employment segment rose a bit. Overall, with a few monthly exceptions, ISM has remained strong (the true measure is its being above 50—which is the most important part of this diffusion index and signifies a positive result as opposed to negative). In line with other measures, the employment component of this survey has steadily been improving, albeit slowly. It is possible that some seasonal and inventory/price-related effects may have altered the numbers, but that is only speculation at this point.

(-) The March non-manufacturing ISM index fell as well, from February’s 56.0 to 54.4. This was compared to an expected consensus 55.5 reading, so the decline was to a lesser degree than was the manufacturing variety. In this survey, employment fell, as did new orders and overall business activity. While this now stands at a 7-month low, the above-50 reading is still more bullish than bearish. Continue reading →

There has been a lot of talk lately about the bond crisis and the potential for a correction.  J.P. Morgan created a chat that shows how various asset classes historically react in different types of inflationary environments.  Continue reading →

(+) Durable goods orders were stronger than expected overall for February, at a gain of +5.7% versus an expected +3.9% increase.  The ex-transportation component, however, lost ground of -0.5% for the month, which lagged the forecasted gain of +0.6%.  Finally, the ‘core’ capital goods group fell -2.7% versus a consensus drop of -1.1%.  In the underlying numbers, several metrics pared back from especially strong results in January, such as machinery orders.  On the positive side, shipments for non-defense-related capital goods ex-aircraft (related to the GDP input number) rose +1.9%, which beat expectations by about one-half percent.  A somewhat convoluted report, but the trend so far in 2013 has been positive.

(+) Personal income for February gained +1.1%, which was a positive surprise versus the +0.8% expected, and included a +0.6% gain in wage/salary income.  Along with the higher income, the savings rate also rose, as did consumer spending—up +0.7%, which was a tenth of a percentage point of a positive surprise.  The consumer response didn’t fall off as some expected due to the higher payroll tax rate this year; however, the primary driver for consumer buying was higher gasoline prices, which tends to be the less satisfying kind of spending for most people.  The PCE price index, which is used in GDP statistics and differs a bit in the calculation method from CPI, rose +0.39% on the month, which was below the forecasted +0.5% figure.  The core version of the same inflation index rose nominally, about 6 hundredths of a percent, just a shade below expected.  The difference between the headline and core, naturally, was the higher price of gasoline during the month. Continue reading →

With the recent market rally there has been a lot of talk about the sustainability of this run up.  It is important to always take a step back and keep things in perspective.  When building an investment strategy, Continue reading →