| USA Nominal personal income rose a consensus-matching 0.3% in the U.S. in April following a 0.5% increase the prior month. The wage/salary component of income advanced 0.2%, whereas income derived from government transfers rose 0.3%. Personal current taxes, meanwhile, jumped 0.9%. All this translated into a 0.2% increase in disposable income. Nominal personal spending, for its part, crept up 0.2%, one tenth less than the median economist forecast calling for a +0.3% gain. Outlays on goods contracted 0.2%, while services spending expanded 0.4%. As disposable income grew at roughly the same pace as spending, the savings rate stayed unchanged at 3.6%, a level far below those observed before the pandemic (between 6.5% and 8.5%). Adjusted for inflation, both disposable income and personal spending retraced 0.1%. In the latter case, the decline reflected a 0.4% decline in the goods segment. Real outlays on services, for their part, edged up 0.1%. Within goods, the decrease was led by gasoline/other energy goods and recreational items, while the increase in services was driven by health care. Still in April, the headline PCE deflator came in at 2.7%, unchanged from the prior month and in line with consensus expectations. The core measure also remained unchanged, at a consensus matching 2.8%. On a monthly basis, the headline index moved up 0.3%, while the core gauge rose 0.2% The Conference Board Consumer Confidence Index climbed from 97.5 in April to 102.0 in May, instead of falling to 96.0 as per the consensus forecast. Despite the improvement, the index continued to move well below the series’ pre-pandemic level. Consumer assessment of the present situation improved, with this sub-index climbing from 140.6 to 143.1. The share of respondents that deemed current business conditions bad remained unchanged at 17.6%, while the proportion that considered jobs hard to find slid from 15.5% to 13.5%. Still, the share of respondents that deemed jobs plentiful declined for the third consecutive month, sinking to 37.5%. The sub-index tracking longer-term expectations improved as well, jumping from 68.8 to 74.6. However, it, too, remained far below the series’ long-run average. The rise occurred on the back of a lower share of respondents that had a negative view of future business conditions (from 19.1% to 16.8%), employment (from 19.8% to 18.2%), and income (from 14.0% to 11.0%). Furthermore, proportionally more respondents planned to buy major appliances (from 43.0% to 49.4%) in April, but less expected to buy a home (from 5.2% to 5.0%). The percentage planning to buy a car, meanwhile, remained unchanged at 11.5%. Finally, consumer inflation was expected to stand at 5.4% for the next 12 months, up from 5.3% in April The S&P CoreLogic Case-Shiller 20-City Home Price Index rose 0.33% m/m in March to an all-time high. This was in line with the median economist forecast calling for a 0.3% increase. Though this was the indicator’s 13th consecutive monthly advance, the pace of the rise slowed down from the previous month. Prices were up in 15 of the markets covered, led by New York (+1.26%), Cleveland (+1.25%), Chicago (+0.76%), and Boston (+0.56%). Year on year, prices rose 7.38% at the national level, the ninth consecutive progression. Very tight supply and a strong labour market are likely to keep driving prices up in the coming months despite persistently weak demand in the real estate market The second estimate of Q1 GDP growth came in at +1.3% in annualized terms, three ticks weaker than the advance estimate (+1.6%) but in line with the median economist forecast. Household consumption was revised downward (from +2.5% q/q annualized to +2.0%) on lower spending on services (from 4.0% to 3.9%) and goods (from -0.4% to -1.9%). International trade had a more negative impact on headline growth than initially reported (-0.89 percentage point versus -0.86), while inventories subtracted 0.45 pp. Business fixed investment was upgraded (from 5.3% to 6.0%) as spending on structures (from -0.1% to 0.4%) and intellectual property (from 5.4% to 7.9%) proved stronger than initially reported. Equipment spending, on the other hand, was revised downward (from +2.1% to 0.3%). Final sales to domestic purchasers (i.e., household spending plus gross business investment), a good gauge of the underlying strength of an economy, expanded 2.5% annualized in the quarter, down from 2.8% in the previous release. On the inflation front, the 12-month increase in the Personal Consumption Expenditures Price Index excluding food and energy ticked down to 3.6% The Pending Home Sales Index fell 7.7% in April. The consensus forecast was calling for a much more discreet decline of 1.0%. As a result, pending transactions remained weak on a historical basis. Year on year, they were down 0.8%. According to the latest edition of the Fed’s Beige Book, overall economic activity expanded slightly over the period extending from early April to mid-May, much as it in the previous period. Consumer spending barely increased, with several contacts highlighting weakness in discretionary spending and greater price sensitivity. Tourism was a bright spot, as both leisure and business travel increased. As financing conditions remained restrictive, the housing market rose only modestly, and the commercial real estate sector moderated. Regarding expectations, “outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks The US Treasury auctioned two-, five- and seven-year notes this week. Amid weaker-than-normal demand, none of the auctions was well received. The US 10-year note yield reached a high of 4.635% on Wednesday afternoon after the seven-year auction though bonds rallied Thursday on the heels of the downside GDP revision. The Beige Book, a collection of anecdotes from the Federal Reserve districts prepared in the weeks ahead of an FOMC meeting, showed that 10 of the 12 districts characterized growth as slight or moderate. The report described retail sales as flat to slight, reflecting lower discretionary spending and heightened price sensitivity among consumers. Job growth was depicted as negligible to modest in eight of 12 districts. Most of the major benchmarks closed lower over the holiday-shortened week but rounded out a month of gains. In contrast to much of the month, small-caps performed better than large-caps, and value stocks held up better than growth shares. The technology-heavy Nasdaq Composite was especially weak, due in part to a sharp decline in cloud software provider Salesforce, which fell sharply after releasing first-quarter revenues that missed consensus estimates. Markets were shuttered Monday in observance of the Memorial Day holiday For the Fed, April’s data were a step in the right direction, but there is still more work to be done before rate cuts become imminent. So now, all eyes are focused on data coming next week, and specifically the May payrolls report. After April’s real spending and payrolls data surprised to the downside, the focus will be for any signs that the month was not a one-off and weaker momentum continued into May. Federal Reserve Bank of New York President John Williams reiterated that he sees no urgent need to adjust monetary policy. Williams said he sees ample evidence that policy is restrictive and that he expects inflation to resume easing in the second half of the year. Rate hikes, he said, are unlikely. In terms of data release, the ISM Manufacturing Index is out on Monday. The ISM manufacturing index has been creeping higher this year, and in March it inched back above the key 50 threshold that separates expansion from contraction. However, the index dipped back below 50 in April and remains weak for an economy that is expanding at a solid rate. The headwinds weighing on the manufacturing sector have not materially changed, with high interest rates, a strong dollar and tepid global growth still keeping factory output growth in check. The JOLTS print is out on Tuesday. Data from the Job Openings and Labor Turnover Survey (JOLTS) continue to signal that the U.S. labor market is gradually cooling despite strong growth in nonfarm payrolls. Job openings at the end of March fell to 8.49 million, leaving them down 12% over the past year and 30% below their peak in March 2022. At 5.1%, the opening rate has fallen to more than a three-year low. The cooling in the JOLTS data extends beyond just the total number of job openings. The share of workers quitting their jobs tends to be highly pro-cyclical. When the labor market is tight, workers quit their jobs at higher rates amid robust prospects for finding a better or higher-paying job. When the labor market is weak, workers often do not have as much confidence that they can quit their jobs and successfully find greener pastures elsewhere. UK Data releases would support the theory that prices in the UK housing market have bottomed out. While Nationwide’s index posted negative MoM prints for March and April, May’s figure reported an increase of 0.4% MoM and 1.3% YoY. The data contained with the Bank of England’s money and credit release would also suggest cautious signs of the housing market returning to health. Mortgage approvals, a key indicator of future borrowing, registered at 61,100 for April. This is roughly the same as the previous month, but notably the figure is just shy of the average in the years leading up to the pandemic. There is some evidence of consumer caution emerging in the money and credit release, although one-off factors are likely affecting the data. Households deposited an additional 8.4bn GBP with banks and building societies in April, the highest net inflow since September 2022. This was driven by households depositing an additional 11.7bn GBP into ISAs, no doubt driven by the ISA deadline on 5th April. Turning to consumer credit, it is notable that the figures are muted: net consumer credit borrowing decreased from GBP 1.4bn in March to just GBP 0.7bn in April. While these figures suggest consumers continue to be in ‘savings mode’, as real wage growth continues to be positive and consumer confidence improves, it could be that saving rates drop and increased consumer spending into the UK economy. EU Eurozone inflation rose to 2.6 percent in May from 2.4 percent in April after a gentle downward trend during the first four months of 2024. The main disappointment, however, was the acceleration in core inflation from 2.7 percent in April to 2.9 percent in May, signalling a surprisingly bumpy road during the last mile of disinflation. Bloomberg survey expectations implied unchanged core inflation at 2.7 percent, and headline inflation rising to 2.5 percent. Moreover, services inflation rose again to 4.1 percent in May after easing to 3.7 percent in April, which should be a particular concern for the ECB. Meanwhile goods disinflation continued to ease an inch to 0.8 percent from 0.9 percent in April German headline inflation was 2.8 percent in May up from 2.4 percent in April. The uptick partly mirrors base effects related to the introduction of a cheap public transport 12 months ago. However, inflation in the eurozone’s largest economy could still be a concern for the ECB as German negotiated wages increased by 6.2% YoY in the first quarter, compared with 4.7% for the entire eurozone. In France, headline inflation rose to 2.7 percent in may from 2.4 percent in April. National inflation measures suggest that the acceleration was driven by a rise in energy prices, while services inflation, slowed to 2.7 percent from 3.0 percent in April. Italian headline inflation decreased to 0.8 percent from already low 0.9 percent in April. In Spain, inflation ticked up for a third month to 3.8 percent in May, from 3.4 percent in April, partly reflecting the rollback of government support to contain energy crisis. The increase in Spanish core inflation was smaller, from 2.9 to 3.0 percent, after a steady downward trend over the past year. ECB Chief Economist Philip Lane signalled that borrowing costs would probably be lowered at the June 6 meeting. He told the Financial Times newspaper: “Barring major surprises, at this point in time there is enough in what we see to remove the top level of restriction.” However, the newspaper reported that Lane said the pace at which the central bank eases borrowing costs this year would depend on incoming economic data. “The best way to frame the debate this year is that we still need to be restrictive all year long,” he added. “But within the zone of restrictiveness we can move down somewhat.” In local currency terms, the pan-European STOXX Europe 600 Index ended 0.46% lower as hotter-than-expected eurozone inflation increased uncertainty about policy easing by the European Central Bank (ECB) beyond June. Major stock indexes also fell over this period. France’s CAC 40 Index dropped 1.26%, while Germany’s DAX declined 1.05%. Italy’s FTSE MIB ended the week flat. CHINA Officials in Shanghai announced measures to shore up homebuying demand in China’s largest city. Measures included lowering the minimum down payment ratio for home purchases, reducing the minimum interest rates on first home mortgages, and relaxing social insurance and income tax payment requirements for non-Shanghai residents. The easing of homebuying rules in Shanghai comes after the central government earlier in May rolled out a historic rescue package for China’s ailing property sector, which has emerged as a major growth headwind and left the economy dependent on exports Although both PMI readings underscored pockets of weakness in China’s economy, most economists believe that China will meet its growth target this year of around 5%. Earlier in the week, the International Monetary Fund upgraded its 2024 economic growth forecast for China to 5%, up from its April projection of 4.6%, following Beijing’s support measures and a stronger-than-expected first-quarter expansion The official manufacturing purchasing managers’ index (PMI) fell to a below-consensus 49.5 in May from 50.4 in April, marking the first monthly contraction since February. The gauge lagged the 50-mark level, separating growth from contraction. The PMI’s subindexes for new orders and exports also declined. The nonmanufacturing PMI, which measures construction and services activity, slipped to a weaker-than-expected 51.1 from 51.2 in April amid slower construction growth. Separately, profits at industrial firms rose by 4% in April from a year ago and recovered from a 3.5% decline in March, according to the National Bureau of Statistics. Analysts said increased overseas demand and a government push for domestic companies to upgrade their aging equipment drove April’s increase Chinese equities were little changed after an unexpectedly weak manufacturing reading highlighted growth headwinds on the economy. The Shanghai Composite Index was broadly flat, while the blue-chip CSI 300 gave up 0.6%. In Hong Kong, the benchmark Hang Seng Index lost 2.84%, according to FactSet. |
| Sources: T. Rowe Price, Wells Fargo, Handelsbanken Capital Markets, TD Economics, National Bank of Canada, M. Cassar Derjavets. |
