Solid Momentum Beneath the Headlines
- Swings in winter weather appear to be behind most of the below-consensus 103,000-job rise in March nonfarm payrolls. Job growth averaged 202,000 per month during the first quarter.
- Both the ISM manufacturing and non-manufacturing indices eased in March but both remain at levels consistent with real GDP growth in the 3 percent range or better.
- Motor vehicle sales came in slightly stronger than expected, suggesting that March may see a bit of a bounce back in consumer spending.
Producer Price Index-Tuesday
Producer prices have been edging higher. Producer inflation rose 0.2 percent in February to a year-over-year pace of 2.8 percent. Services inflation was the source of the rise in February, as goods prices edged down. Food and energy prices weighed on prices for goods. Trade services prices were also down on the month, but transportation and warehousing costs rose enough to offset that decline.
Input cost growth quickened in February, suggesting producer prices will continue rising in coming months on higher intermediate prices. Still, the pace of price growth appears to be manageable in the near term.
Producer prices will be an important gauge to watch in coming months to determine the impact of recently imposed tariffs on steel and aluminum on final goods prices.
Consumer Price Index • Wednesday
Consumer inflation has strengthened in recent months. On the heels of a strong January increase, the CPI rose 0.2 percent in February and is now up 2.2 percent over the year. Higher energy prices were less of a factor in February. The core CPI also increased 0.2 percent on the month and apparel prices continued to rise solidly, which helped offset declines in medical, commodities and education prices. Food and beverage, recreation and transportation prices were flat on the month while housing costs rose in line with recent readings.
Core CPI is running at 1.8 percent over the year, but that should rise closer to 2 percent in March as year-to-year comparisons will coincide with last year’s decline in wireless services. Inflation is firming more broadly as well, with ISM surveys continuing to show businesses paying higher prices. Inflation does not appear set to run out of control, however, giving the Fed space for gradual tightening.
U.K. Industrial Production • Wednesday
Industrial production (IP) in the United Kingdom more or less flat- lined in summer 2016 due, at least in part, to the uncertainty regarding the economic outlook that was imparted by the Brexit referendum. However, uncertainty has subsequently dissipated, at least somewhat, and IP has been trending higher. IP data for February, which will print on Wednesday, will give analysts more insights into the state of the British economy in the first quarter. The consensus forecast anticipates that IP rose 0.4 percent in February following its 1.3 percent rise in January.
Construction data for February will be released on Wednesday. Real construction spending fell 3.2 percent on a year-ago basis in January due in part to weakness in public expenditure on construction. A widely regarded think tank will release its estimate of Q1 GDP growth on Wednesday, which will help us calibrate our own estimate.
Import Prices • Thursday
Import prices continued to climb in February, rising 0.4 percent to extend the streak of monthly gains to seven months. Import prices rose even though petroleum prices declined on the month, as non- fuel import prices rose 0.5 percent for the second straight month. Prices rose most in February for imported foods and beverages. Over the past year, prices for imported industrial supplies have seen the fastest growth along with petroleum.
Export prices continued to rise in February as the global demand picture continued to strengthen, and the dollar has generally been easing. The trade weighted dollar was largely flat in March.
Prior to the March announcement of tariffs on steel and aluminum, prices for both were already rising by double digits over the year. We expect only a marginal effect on final consumer prices from the steel and aluminum tariffs.
Eurozone Industrial Production • Thursday
The industrial sector in the Eurozone accelerated in 2017. Indeed, IP rose 2.9 percent last year, its strongest annual growth rate since 2011. But there are indications that growth in IP may have downshifted so far in 2018. Eurozone IP fell 1.0 percent in January relative to the previous month, and the manufacturing PMI has declined for three consecutive months after climbing to its highest level since 2000 in December. That said, the PMI remains well above the demarcation line separating expansion from contraction, indicating that the upward trend in IP probably remains in place.
IP in the euro area has been boosted in part by solid economic growth in the rest of the world, which has contributed to strong growth in Eurozone exports. Trade balance data for February are on the docket on Friday. These data and the IP data that will be released on Thursday will help analysts refine their GDP growth estimates for Q1.
Singapore GDP • Friday
Singapore will release its estimate of GDP growth in the first quarter on Friday. Although the Singaporean economy is tiny—it is only 2 percent the size of the U.S. economy—it is an important global bellwether. Historically, Singapore has been the first economy to release GDP data for the recently-completed quarter. Moreover, it is one of the most open economies in the world, and there is a high degree of correlation between Singaporean GDP growth and global economic growth. Consequently, Singaporean GDP data can shed some light on the current state of the global economy.
Global GDP growth strengthened in 2017 following its slowdown in 2015 and 2016, which contributed to the acceleration in the Singaporean economy last year. There are not many forecasters of Singaporean GDP growth, but the consensus looks for the year-over- year growth rate to have picked up further in Q1.
Foreign Central Banks Eye U.S. Developments
- Russian GDP growth missed expectations in Q402017 but still posted the fastest full-year growth since 2013.
- Purchasing Manager Indices in Europe and the United Kingdom suggest a slower pace of economic growth toward the end of Q1. Construction activity in the United Kingdom posted an especially soft reading in March.
- Both the Reserve Bank of India (RBI) and the Reserve Bank of Australia (RBA) kept their main policy rates unchanged this week. The RBI noted rising global trade tensions as a risk to the outlook, while the RBA cited rising short-term interest rates in Australia due to spillover effects from the United States.