Positive Revisions Might Become the Story for Retail Sales in 2019
Group of friends sitting outdoors with shopping bags; several people holding smartphones and tablets. (Photo: AdobeStock/ OneInchPunch/PPD)
U.S. retail sales for February came in at a seasonally adjusted $506.0 billion, down 0.2% (±0.5%) from December but 2.2% (±0.7%) above February 2018.
Retail sales excluding auto were down 0.4%, while less auto and gas were down 0.3%.
The consensus forecast was 0.3%, ranging from a low of 0.0% to a high of 1.1%. Less auto, the consensus forecast was 0.4%, ranging from a low of 0.0% to a high of 0.6%. Less auto and gas, the consensus forecast was also 0.4%, ranging from a low of 0.0% to a high of 0.6%.
However, overall retail sales for the year are up given revisions to previously-reported months of either weakness and/or declines.
Total sales for the period from December 2018 through February 2019 were up 2.2% (±0.5%) from the same period a year ago. The December 2018 to January 2019 percent change was revised from up 0.2% (±0.5%) to up 0.7% (±0.3%).
Retail trade sales were down 0.2% (±0.5%) from January 2019, but 2.1% (±0.5%) above last year. Nonstore retailers were up 10.0% (±1.8%) from February 2018, while health and personal care stores were up 5.9% (±2.5%) from last year.
Positive Economic Data Outweighs Negative, With No Recession in Sight
American flag and U.S. dollar financial and economy concept. (Photo: AdobeStock)
This week in economic news, reported income gains were the highest since 1966, new home sales gained significantly for the second month and Real GDP for 2018 came in at 3%.
Consumer Sentiment and Confidence
The final reading on consumer sentiment for March showed significant acceleration, rising to 98.4 from 93.8 to beat the high end of the forecast range. The gain was the result of increased optimism among working Americans.
“The March gain in the Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution,” Richard Curtain, chief economist for the Survey of Consumers said. “Indeed, the last time a larger proportion of households reported income gains was in 1966.”
Some network and cable news pundits have raised the possibility of a slowdown turning into a recession. The Survey of Consumers put much of that talk to bed. As the chart below shows, the data do not indicate an emerging recession.
Meanwhile, the Consumer Confidence Index declined to 124.1 in March, missing the consensus forecast at 133.0. Forecasts ranged from a low of 130.0 to a high of 134.4.
“Consumer Confidence decreased in March after rebounding in February, with the Present Situation the main driver of this month’s decline,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.
“Confidence has been somewhat volatile over the past few months, as consumers have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report.”
While unemployment declined to 3.8% and wages grew by 3% or greater for the seventh straight month, the headline jobs number for last month missed by 160,000.
Employment and Jobs
Weekly jobless claims, which will be included in the Employment Situation report for March due at the end of next week, came in at 211,000 for the week ending March 23. That’s a decline of 5,000 and stronger than the forecast.
The 4-week moving average fell to 217,250, a decline of 3,250 from the previous week’s revised average. The advance seasonally adjusted insured unemployment rate was unchanged at a historic low of 1.2% for the week ending March 16.
The Bureau of Economic Analysis (BEA) released the personal income and outlays report, which was a mixed bag for February. Gains in wages and salaries were partially offset by declines in interest income.
Personal income increased $42.0 billion (0.2%) in February, while disposable personal income (DPI) also gained by 0.2%, or $31.3 billion.
Gross Domestic Product (GDP)
The “third” estimate for fourth quarter (Q4) GDP came in at 2.2%, putting the annual growth rate at a solid 2.9% (Y-to-Y). While that’s down from 2.6% and 3.1%, respectively, it met the consensus forecast.
From Q4 2017 to Q4 2018, real GDP gained 3.0%, up from 2.5% in 2017. Current-dollar GDP increased 5.2%, or $1.01 trillion, to a level of $20.49 trillion. The latter compares with an increase of 4.2%, or $778.2 billion, in 2017.
Real gross domestic income (GDI) increased 1.7% in Q4, while the average of real GDP and real GDI, which is a supplemental measure of U.S. economic activity that equally weights GDP and GDI, rose 1.9%.
Housing Market
Despite the decline, the Conference Board result was still elevated and, as Mr. Curtain stressed, the Survey of Consumers data do not indicate an emerging recession, but rather slightly lower unit sales for vehicles and homes.
Indeed, the Pending Home Sales Index (PHSI) fell 1.0% to 101.9 in February, down from 102.9 and slightly more than the consensus forecast. Year-over-year contract signings were down 4.9% for the fourteenth straight month of annual declines.
“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” Lawrence Yun, NAR chief economist said. “As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring.”
Mr. Yun expects existing-home sales to be down 0.7% to 5.30 million for the year, and the national median existing-home price to increase around 2.7%. For 2020, existing sales are forecast to increase 3% and home prices also around 3%.
Inventory has been a major challenge, though Mr. Yun noted that meeting demand could change forecasts.
New home sales surged 4.9% (±14.4%) in February to a seasonally adjusted annual rate of 667,000, easily beating the high end of the forecasts.
The consensus forecast for the jointly released new construction report was looking for an already strong 615,000, ranging from a low of 600,000 to a high of 635,000.
In January, new home sales also came in at a solid rate of 636,000, and now February is 0.6% (±13.1%) higher than the February 2018 estimate of 663,000.
The 3-month average for the volatile report now sits at a very favorable rate of 630,000, the strongest level since June last year.
Energy
The Baker Hughes (BHI) North America Rig Count fell another 66 rigs for the week ending March 29, as both the United States (US) and Canada declined.
The U.S. rig count declined by 10 to 1016, but remains 21 rigs above the previous year. The rig count for Canada declined by 56 to 105, and remains 56 rigs below the previous year.
While not all the economic news was positive, the good continues to outweigh the bad and the overall picture does not indicate recession.
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Key with business words and rig equipment graphic icons relative to the oil and gas industry. (Photo: PPD/AdobeStock/JEGAS RA)
The Baker Hughes (BHI) North America Rig Count fell another 66 rigs for the week ending March 29, as both the United States (US) and Canada declined.
The U.S. rig count declined by 10 to 1016, but remains 21 rigs above the previous year. A new study finds the U.S. will overcome Saudi Arabia in 2019 as the world’s top oil exporter.
Rigs classified as drilling for oil in the U.S. declined by 8 rig to 816, but are still 19 rigs more than the prior year’s level. Rigs classified as drilling for gas fell by 2 to 190, which is 4 less than last year.
The rig count for Canada declined by 56 to 105, and remains 56 rigs below the previous year.
For Canada, rigs classified as drilling for oil fell another 14 to 35, and are now 36 fewer than one year ago. Rigs classified as drilling for gas were down by 3 to 53, which is 10 less than last year.
The Gulf of Mexico, while a subset of the U.S., is a separately counted component. It rose by 3 rigs to 23, which is 11 rigs higher than one year ago.
The Baker Hughes Rig Count tracks weekly changes in the number of active rigs classified as drilling for either oil or gas. Active rigs are essential for the exploration and development of oil and gas fields.
Percentage of Households Reporting Income Gains Highest Since 1966
Sale, consumerism and people concept – happy family with child and shopping cart buying food at grocery store or supermarket. (Photo: PPD/AdobeStock/Syda Productions)
The final reading on consumer sentiment for March showed significant acceleration, rising to 98.4 to beat the high end of the forecast range. The gain in March was fueled by increased optimism among working Americans.
“Consumer confidence rebounded in March to 98.4 from last month’s 93.8, slightly above the average of 97.2 recorded in the past 26 months,” Richard Curtain, chief economist for the Survey of Consumers said.
“The March gain in the Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution, posting a gain of +7.1 Index-points, while households with incomes in the top third fell by 1.1 Index-points.”
The consensus forecast for the Survey of Consumers was looking for an already strong 97.8, ranging from a low of 97.5 to a high of 97.9. Worth noting, the data do not indicate an emerging recession, but rather slightly lower unit sales for vehicles and homes (See chart below).
“Middle and lower income households more frequently reported income gains than last month, although income gains were still widespread among upper income households,” Mr. Curtain added. “Indeed, the last time a larger proportion of households reported income gains was in 1966.”
Current Economic Conditions soared to 113.3, up from an already strong 108.5 in February. The Index of Consumer Expectations rose strongly to 88.8, up from 84.4 in February.
Reported current and expected rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations. Overall, all income groups voiced more favorable growth prospects for the economy.
While no further decline in interest rate expectations was recorded in March, survey data suggest consumers anticipate additional increases in 2019.
“Finally, it should be noted that too few interviews were conducted following the summary release of the Mueller report to have any impact on the March data; if there is any, it may affect the April data,” Mr. Curtain added.
The next data release, which will be the preliminary reading for April, is scheduled for Friday, April 12, 2019 at 10:00 a.m. EST.
An exchange showing one hand giving cash to the another for new house and keys, a vector illustration for new home sales. (Photo: AdobeStock)
New home sales surged 4.9% (±14.4%) in February at a seasonally adjusted annual rate of 667,000, easily beating the high end of the forecasts.
The consensus forecast for the jointly released new construction report was looking for an already strong 615,000, ranging from a low of 600,000 to a high of 635,000.
The U.S. Census Bureau and Department of Housing and Urban Development (HUD) previously reported January came in at a solid rate of 636,000, and this February is now 0.6% (±13.1%)* higher than the February 2018 estimate of 663,000.
The 3-month average for the volatile report now sits at a very favorable rate of 630,000, the strongest level since June last year.
The median sales price of new houses sold in February 2019 was $315,300. The average sales price was $379,600.
The seasonally‐adjusted estimate of new houses for sale at the end of February was 340,000. This represents a supply of 6.1 months at the current sales rate.
But I decided on a different focus because I just read a story that combines two things – wasteful spending and Washington dishonesty – that I don’t like.
Let’s look at the article, which was published in The Hill.
The Senate Budget Committee on Thursday approved a GOP-backed budget resolution that would allow for draconian spending cuts by reducing both defense and nondefense spending for 2020. …The Senate’s budget sticks to the legal caps for defense — falling from $716 billion to $643 billion, including off-book funds — and nondefense, which would drop from $640 billion to $542 billion. …The spending blueprint also would decrease spending on Medicaid, children’s health insurance and Affordable Care Act subsidies by $281 billion, and on Medicare by $77 billion. “…this is a disastrous budget for the middle class and working families of this country,” said Sen. Bernie Sanders(I-Vt.), the panel’s ranking member.
I was initially semi-excited when I read the story.
After all, we desperately need “draconian spending cuts” in Washington.
But I was only “semi-excited” because I feared – based on past experience – that these supposed reduction were fake.
So I decided to look at the actual numbers in the U.S. Senate’s proposed budget.
Lo and behold, my skepticism was warranted. There are zero genuine cuts. Instead, spending increases by an average of 3.5 percent annually under the Senate’s “draconian” budget plan.
Politicians claim there are “cuts” because spending levels in the Senate plan (orange line) don’t rise as fast as what would happen if spending was left on autopilot (blue line).
The political elite like this dodgy game because they can pretend they are fiscal responsible while simultaneously making government bigger.
The bottom line is that politicians should be honest. If they want to argue that spending should grow 3.5 percent yearly (or even more), they should explain why Washington deserves more money.
But don’t lie to us about supposed spending cuts when the budget is expanding.
People count money at Macy’s Herald Square store during the early opening of the Black Friday sales in the Manhattan borough of New York, November 26, 2015. (Photo: Reuters)
The Bureau of Economic Analysis (BEA) personal income and outlays report was a mixed bag for February, as gains in wages and salaries were partially offset by declines in interest income.
Personal income increased $42.0 billion (0.2%) in February, while disposable personal income (DPI) also gained by 0.2%, or $31.3 billion.
The consensus forecast was 0.2%, ranging from a low of 0.1% to a high of 0.4%. Real DPI is unavailable for February.
As previously mentioned, the increase in personal income for February reflected gains in wages and salaries, the largest component. But government social benefits to persons and proprietors’ income also rose.
Those gains were partially offset by a decrease in personal interest income.
Personal income rose $179.0 billion (1.0%) in December before declining $23.8 billion (-0.1%) in January. Personal saving was $1.19 trillion in January and the personal saving rate–or, personal saving as a percentage of disposable personal income–was 7.5%.
DPI decreased $34.9 billion (-0.2%), and personal consumption expenditures (PCE) increased $8.6 billion (0.1%).
2018 Personal Income and Outlays
Personal income rose solidly by 4.5% in 2018, compared with a gain of 4.4% in 2017. DPI increased 5.0% in 2018 compared with a 4.4% gain in 2017. In 2018, PCE increased 4.7%, compared with an increase of 4.3% in 2017.
Real DPI increased 2.9% in 2018, compared with an increase of 2.6% in 2017. In 2018, real PCE increased 2.6%, compared with an increase of 2.5% in 2017.
Devin Nunes, GOP HPSCI Members Cite Schiff’s Past and Present False Russia Collusion Claims
Representative Adam Schiff, D-Calif., speaks with reporters about the House Permanent Select Committee on Intelligence’s Russia investigation on Capitol Hill in Washington, U.S., March 30, 2017. (Photo: Reuters)
Rep. Devin Nunes R-Calif., and the other Republican members of the House Intelligence Committee, called for the “immediate resignation” of Chairman Adam Schiff, D-Calif., citing his repeated false claims on Russia collusion.
Attorney General William Barr penned a letter over the weekend summarizing the findings of the investigation conducted by Special Counsel Robert Mueller on Russia’s interference in the 2016 election.
The bombshell four-page letter to lawmakers–viewable here–stated definitively there was no collusion “despite multiple offers from Russian-affiliated individuals to assist the Trump campaign.”
Yet, Chairman Schiff continues to claim evidence of collusion exists, offering none to support the claims. The investigation by Mr. Mueller came to the same conclusion the committee drew under Mr. Nunes.
“Despite these findings, you continue to proclaim to the media that there is ‘significant evidence of collusion,'” the letter states. “Your willingness to promote a demonstrably false narrative is alarming.”
“The findings of the Special Counsel conclusively refute your past and present assertions and have exposed your position to knowingly promote false information, having damaged the integrity of this committee, and undermined faith in U.S. institutions.”
“Your actions are incompatible with your duties as Chairman of this committee,” the letter adds. “As such, we have no faith in your ability to discharge your duties in a manner consistent with your Constitutional responsibility and urge your immediate resignation as Chairman of this Committee.”
Real Estate Market Going Down Concept Illustration. (Photo: AdobeStock)
The Pending Home Sales Index (PHSI) declined by 1.0% to 101.9 in February, down from 102.9 in January and slightly more than the consensus forecast. Year-over-year contract signings are down 4.9%, the fourteenth straight month of annual declines.
The consensus forecast was -0.8%, ranging from a low of -3.0% to a high of 3.2%.
“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” Lawrence Yun, NAR chief economist said. “As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring.”
Mr. Yun expects existing-home sales to be down 0.7% to 5.30 million for the year, and the national median existing-home price to increase around 2.7%. For 2020, existing sales are forecast to increase 3% and home prices also around 3%.
“If there is a change at all, I would say the Fed will lower interest rates in 2019 or 2020. That would stimulate the economy and the housing market,” Mr. Yun added. “But the expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels.”
Pending Home Sales Index (PHSI) Regional
The PHSI in the Northeast fell 0.8% to 92.1 in February, and is now 2.6% below a year ago. In the Midwest, the index fell 7.2% to 93.2 in February, 6.1% lower than February 2018.
Pending home sales in the South inched up 1.7% to an index of 121.8 in February, which is 2.9% lower than this time last year. The index in the West increased 0.5% in February to 87.5 and fell 9.6% below a year ago.
Stock quotes and trading stats in U.S. dollars shown closeup on a display monitor. (Photo: AdobeStock)
Stocks recovered from sharp sell off late morning to close out the day with moderate losses as investors grappled to weigh the impact on global growth of a U.S. Treasury yield curve that now has a 10 basis point negative slope from 90 days out to 10 years on the duration scale.
The benchmark 10-Year Treasury Yield (US10YBY) rallied 2.36%, it is lowest yield since the last calendar week of 2017. Strikingly, the 10 year German Bund, not only continues to trade with a negative yield, but for much of the day, had an even slightly more negative yield than the Japan 10 year Bond.
Stocks, after a moderately weaker opening, hit an air pocket just over 90 minutes into the day, and 20 minutes later Market Averages had deficits of well over -1%. While stocks began to recover shortly after the end of the trading day in Europe, we could NOT identify heavy selling from the Continent and the UK, as the driver of the late morning decline in the U.S. market.
We mention this, as Money Flows from the EU theatre deserve close scrutiny, as the Continent is the epicenter right now of Slowing Global Growth, highlighted by the negative PMI #s from both France and Germany within the last week, and of course seemingly never ending uncertainty over the Brexit drama.
Back in the U.S., stocks spent hours in a stair step pattern of gradual repair. It took most of the afternoon for investors to get comfortable that we’d avoid a “day long deluge” of selling with a “close on the lows” finale similar to last Thursday.
By the closing bell, Major Market Averages settled with results that tilted to to the downside, as the S&P 500 (^SPX) and NASDAQ Composite (^IXIC) showed losses of -0.5% and -.06% respectively, while the Dow Jones Industrial Average (^DJI) lost only -0.1%, aided by reflex rally in Boeing Co (BA).
Market breadth held very well, with declining issues outpacing advancers by only 250 issues, while Down Volume led Up Volume by 2 to 1 as there was profit taking in a collection of mega-cap technology names.
Relative Strength is always an interesting study on days of big declines and or wide ranging price swings, and there was plenty to look at Wednesday. I almost had the feel of year end type of buying that would typically that would attract some of the worst performing sectors.
Plenty of retailers were beneficiaries. Most retailers had miserable performance in 2018, and many stocks in the sector have had high volatility this quarter, as both macro data and individual earnings have been very inconsistent.
Retail stocks that jumped of the screen included but were not limited to Macy’s Inc. (M) at +$0.42 or +1.7% to $24.35. Nordstrom, Inc. (JWN) +$0.92 or +2% to $44.85. Kohl’s Corporation (KSS) +$1.04 or +1.5% to $69.94 and Urban Outfitters (URBN) +$0.82 or +3% to $28.85
Homebuilders have acted well all quarter, despite inconsistent data on the housing market. Pulte Group (PHM) +$1.40 or +5% $28.81, Toll Brothers, TOL, +$0.58 or +1.6% to $37.03, KB Home (KBH) +$0.65 or +2.7% were stand-out performers Wednesday.
Technically, the Home Builders are one of the strongest looking sectors this quarter, likely projecting optimism for further earnings growth, and housing affordability from lower mortgage rates.
On the flip side, banks and asset managers continue to feel the headwinds of lower rates and a flat to fractionally inverted yield curve. In the Technology space, it was simply a case of well deserved profit taking after a stellar quarter of out-performance.
We’d expect a little less volatility the next 2 days as the first quarter winds down and investors look to both protect their gains QTD while continuing to position for the rest of the year.
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