Trade Concerns Drag, But Recent Data Strong

Recent U.S. data depict a robust economy.

  • The consumer finally returned as retail sales rose for the first time in four months, gaining +0.6% m/m to a +4.5% y/y rate. Auto sales rose +2.0% m/m after four straight months of declines which were caused by hurricane replacement sales in the fall. Core retail sales rose +0.4% m/m, the first increase in four months to a firm +3.8% y/y.
  • Housing starts and permits both rose to y/y rates of +10.9% and +7.5%, certainly a positive, but the data is volatile.
  • Industrial production rose +0.5% m/m to 4.3% y/y, twice the long term average, and down only -0.1% from February’s seven year high. Manufacturing gained +0.1% m/m to a six year high of +3.0% y/y.
  • The Fed’s Empire State Survey also showed strength in manufacturing production, but the 6 month expectations component plunged from 44.1 to only 18.3, only half the long term average and the lowest in two years. The culprit was metals tariffs and fears of a trade war.

Canada: Trade concerns drag, BoC on hold

  • Fears of a trade war also probably weighed on the Bank of Canada’s decision to keep interest rates on hold 1.25%.
  • The BoC did signal however that there will be rate increases this year, saying “"Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target.”
  • Expectations are that there will be two more hikes this year after January’s increase. Financial markets are setting the odds of a rate hike at the May 30th meeting at 50/50.
  • Note that last year the BoC did not hesitate to hike rates as inflation started turning up, raising rates three times in just seven months.
  • For what it’s worth, NAFTA negotiations are slated to resume in Washington on Thursday. All sides are emitting hopeful mumbles about perhaps reaching an agreement in the next few weeks. VP Pence a few days ago stated “we think we are close” and Mexico’s economy minister said he saw an 80% chance of a deal by May.
  • This is getting tiresome. It would be a very good thing for everybody if this were resolved ASAP.

Yesterday, April 17th, was tax day, and fittingly, it snowed.