Economic Outlook – 16 April 2017


Headline US retail sales fell in line with expectations in March, declining 0.20%. February’s already soft print was revised lower, however. Weakness in auto sales continued to weigh on the headline, with auto sales falling in four of the past five months. Control group retail sales, which filter directly into GDP, rose a better-than-expected 0.50% on the month. On a three-month annualised basis, control group sales are up 4.10%. While solid, given the pickup in inflation and softer trend in auto sales, real personal consumption is expected to slow to a 1.10% annualised rate in the first quarter.

Survey data released last week point to continued tightening in the labor market and suggest that the March slowdown in non-farm payrolls is likely to be short-lived. Job openings reportedly remained on course in February, rising to 5.74 million, which marks a seven-month high. Moreover, nearly one-third of small business owners indicated job openings were hard to fill in March.

Import prices fell 0.20% in March, marking the first drop in four months as the recovery in oil prices took a pause. Ex-petroleum, however, prices rose 0.20% and are up 1.20% on a year-over-year basis. The upward momentum in non-fuel prices has largely been driven by strengthening in the business sector as non-fuel industrial supplies and capital goods prices are rebounding. Export prices edged higher in March and are up 3.60% over the past year.

The Producer Price Index (PPI) ticked down 0.10% in March, ending a six month string of gains. As expected, energy was a drag on the headline, down 2.90%. Ex-food, energy and trade services, the PPI rose 0.10%, marking the tenth consecutive increase.

Consumer prices fell in March for the first time in more than a year, declining 0.30% versus expectations that price levels would remain unchanged. A 6.20% decline in gasoline prices was the largest contributor to the headline’s drop. Excluding energy, prices also slipped 0.10% despite a rebound in food prices.

Fed speeches last week merely affirmed plans for balance sheet reduction beginning either later this year or early 2018 and maintained outlook for three Fed rate hikes for 2017. According to Yellen, the Fed is on track to raise interest rate as gradual interest rate increases will set the path for moderate economic growth this year as raising rates rapidly “could conceivably cause a recession”. The central bank chair also said that “The appropriate stance of policy is now closer to, let me call it neutral”. There are divergences among Fed officials as some called for maintaining the pace of rate hike while some opined the pace of rate hike could be pared back as the Fed tapers. There continued to be chatters of four rate hike this year too.

The US will be releasing a number of first tier housing and production reports this coming week: housing starts, existing home sales, PMI manufacturing and services, Empire manufacturing, industrial production as well as Fed Beige Book.


Business sentiment in the euro area is currently excellent, as illustrated by the continued rise in sentiment indicators. Although a noticeable setback seems unlikely in April, the probability of another visible increase is low given already high levels. The purchasing managers‘ indices should more or less have maintained their March levels. For the manufacturing and services PMI, the expectations are with 56.0 (March: 56.2) and 55.5 (March: 56.0) respectively.


China’s exports rebounded more than expected by 16.40% year-on-year in March thanks to higher shipment to its major export destinations spurred by a weaker RMB and improving global demand. Meanwhile imports extended its fourth straight month of increase, albeit at a more moderate pace of 20.30% year-on-year, pointing to healthy domestic demand that will keep overall GDP growth firm in the 6.70% to 6.80% region in 1Q17. Any potential shift in trade policies with the US will be the biggest wildcard clouding exports prospects of the China economy.


Sources: Wells Fargo, Commerzbank, HongLeong Bank.

Leave A Comment