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Look forward to May 13, 2019 week: Consumer spending could bolster the case for a strong economy in the second quarter

The May 13 week has quite a few reports on the calendar, among them some bellwethers for economic conditions.

At the top of the list should be the numbers on retail and food sales for April at 8:30 ET on Wednesday. On the plus side, the dollar value of sales may follow the up 1.6% in March with another solid performance as prices for gasoline continued to rise, and milder spring weather in conjunction with the Passover/Easter holiday stimulated demand for seasonal merchandise. However, on the down side sales of motor vehicles were decidedly softer in April after March. The underlying trend for sales should start off the second quarter with a respectable increase, but not without some volatility as well.

Data on e-commerce sales for the first quarter will be released on Friday at 10:00 ET. On-line shopping has steadily gained in popularity since the Commerce Department first started tracking the data nearly 20 years ago. It is possible that e-commerce’s share of all retail sales will crest 10% for the first time in the next report. In part the trend will reflect the widespread closure of brick-and-mortar stores in a cycle where consumers’ liking for the convenience of on-line shopping has led to fewer stores, and fewer stores are driving consumers to shop on the internet.

The preliminary University of Michigan Consumer Sentiment Index for May at 10:00 ET on Friday could increase from the final 97.2 in April. To all appearances the labor market is quite favorable for workers and few things assure consumer optimism in the present like plentiful and secure employment with rising wages, if modestly so. The six-month outlook could also be somewhat improved with the news that growth in the US has not faded in spite of some softening in demand for goods and services.

Adding to positive consumer perceptions of labor market conditions will be levels of new claims for jobless benefits for the week ended April 11 at 8:30 ET on Thursday. The numbers have been a bit noisy due to seasonal adjustment around the variable Passover/Easter observances. However, the prior week seemed to return to the underlying trend and the coming week’s numbers should look much the same.

The data on state unemployment and employment for April at 10:00 ET on Friday will add some nuance to the Employment Situation for April which saw the unemployment rate at 3.6% — a near 50-year low – and payroll gains rising sharply and surprisingly given the maturity of the expansion.

Gauging confidence for small businesses, the NFIB Small Business Optimism Index for April at 6:00 ET on Tuesday could see a mild gain for the recent trend in the low 100’s. Business activity is still healthy, but the index isn’t likely to return to the record highs seen in 2018. Rather, readings should remain in line with modest-to-moderate expansion.

Central to the outlook for keeping monetary policy on hold – and for some the hope of a rate cut – is the recent series of tame readings for inflation measures and the dip in inflation expectations. The 1- and 5-year inflation expectations in the University of Michigan Survey of Consumers have been on the low side, and somewhat surprisingly so given the upward movement in gasoline prices. That may have caught up with the survey by early May while overall price pressures seem mild at a time when incomes are gaining and households’ ability to absorb higher costs has improved. The Atlanta Fed’s Business Inflation Expectations for May at 10:00 ET on Wednesday will probably not be much changed from the prior month’s 1.9%, just below the Fed’s 2% inflation objective. However, President Trump’s decision to impose higher tariffs on $200 billion in Chinese goods may change that perspective.

The Import Price Index for April at 8:30 ET on Tuesday should be much as expected with higher petroleum prices restrained by overall mild changes in prices of imported goods.

The NAHB Housing Market Index for May at 10:00 ET on Wednesday should hold up to the 63 reading of April which was the highest since 68 in October 2018. While mortgage interest rates have leveled off, they are below the peaks seen back in November 2018. Now that some worries about the outlook for the US economy – and by extension the condition of the labor market – have faded, consumers are more willing to commit to a home purchase while rates are relatively low and before prices go much higher. Working against it is narrow supplies of the more sought-after existing units and limited inventory of new construction.

Some buyers are opting for buying homes not yet built, and builders are anxious to tap into that market. The data on housing starts and building permits issued for April at 8:30 ET on Thursday should get a push upward from milder weather and good demand. Some activity could be constrained by lack of construction workers and land available for building, but the level of starts and permits should be consistent with a livelier market.

Surveys of the factory and service sectors for May will provide a look at activity around the mid-point of the second quarter 2019. The New York Fed’s Empire State Manufacturing Survey at 8:30 ET on Wednesday is expected to cool a bit from the 10.1 in April but remain in line with middling expansion. The Philadelphia Fed’s Manufacturing Business Outlook at 8:30 ET on Thursday is also expected to show that modest expansion is the trend.

Data for industrial production and capacity utilization in March is at 9:15 ET on Wednesday.  There may have been some improvement in activity for manufacturing while mining output continued to be sluggish and utilities output was down due to milder weather compared to February.

The earliest look at conditions for the non-manufacturing sector will be the New York Fed’s Business Leaders Survey at 8:30 ET on Thursday. The current business activity was about unchanged at 10.9 in April after 10.8 in March and it expected to show a similar level in May.

The Commerce Department’s advance report on service sector revenues for the first quarter will be released at 10:00 ET on Friday. Service sector revenues advanced steadily over the prior three quarters. However, typically revenues decline in the first quarter before picking up for the remaining three in a calendar year.

The Conference Board’s Leading Economic Index for March at 10:00 ET on Friday will probably reflect another month’s positive outlook for growth, although at a slower pace than the up 0.4% in March. A jump in stock prices, lower claims, and better expectations for business should help affirm that the US economy is humming along.

 

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