GREEN SHOOTS IN APRIL ECONOMIC DATA
Green shoots appeared in U.S. economic data as the economy entered the second quarter.
Leading indicators signaled low odds of a recession in the coming year. The Conference Board’s Leading Economic Index (LEI) rose 3.1% year over year in March, breaking a five-month slide in annual growth.
Jobs data at the beginning of April confirmed that signs of labor market weakness earlier in the year were temporary. Nonfarm payrolls growth exceeded estimates, while the unemployment rate held steady near a cycle low. Overall, the U.S. labor market remained robust for this point in the cycle, with no apparent sign of the rapid slowing that has often occurred before the onset of a recession.
Consumer inflation slowed, reflecting the sting of lower global demand [Figure 2]. The core Consumer Price Index, which excludes food and energy, increased 2% year over year, the slowest pace in 13 months. Core personal consumption expenditures (PCE), the Federal Reserve’s (Fed) preferred inflation gauge, rose 1.6% year over year in March, its slowest growth since September 2017.
However, wage and producer price growth remained steady, signaling pricing pressures continued to build. Average hourly earnings grew 3.2% year over year, a level of growth that should continue to bolster consumer confidence and support consumer spending. The core Producer Price Index (PPI), which excludes food and energy prices, rose 2.6% year over year in March.
U.S. manufacturing reports sent mixed signals about the health of the sector in March. The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers’ Index (PMI), a gauge of U.S. manufacturing health, rebounded slightly after hitting a new low in February. Markit’s PMI declined to a 21-month low in March, but preliminary data for April showed a slight rebound in manufacturing activity.
Consumer and business spending data ticked up, though confidence gauges deteriorated further, reflecting U.S. consumers’ and businesses’ uncertainty amid global headwinds. Retail sales rose 1.6% in March, its biggest monthly gain since September 2017, while new orders for nondefense capital goods grew 1.3% in March, the biggest monthly rise since July 2018, according to preliminary data. However, the Conference Board’s Consumer Confidence Index slid in March, while the National Federation of Independent Business’s (NFIB) measure of business confidence was unchanged near a two-year low.
ECB, Bank of Japan Keep Rates Unchanged
The Fed took a break from rate changes prior to its next policy meeting, scheduled to conclude May 1. The European Central Bank (ECB) announced April 10 that it would leave rates unchanged and reiterated its plans to hold rates through 2019. The ECB noted concerns around trade uncertainty and Brexit, and policymakers reportedly discussed plans to provide more stimulus if economic growth in the region doesn’t improve. The Bank of Japan (BoJ) also kept rates unchanged at historically low levels in an April 25 announcement and pledged to keep rates low until at least the spring of 2020.
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