The markets were mixed for the month, but all three indexes posted healthy gains for the first quarter. The DOW closed at 20,663, down 0.7% for the month but up 4.6% for the quarter. The NASDAQ closed at 5,992, up 1.5% for the month and just under 10% for the quarter. The S&P, the index most closely followed by economists, closed at 2,363, down 0.1% for the month but up 5.5% for the quarter. The DOW has gained more than 4,400 points (28%) over the past six quarters.
CONSUMER CONFIDENCE JUMPS TO 125.6
The New-York based Conference Board’s Consumer Confidence Index jumped to 125.6 in March after rising to an upwardly revised 116.1 in February. Consumer confidence is at the highest level since December 2000. The Present Situation Index rose more than ten points to 143.1 after rising to 133.4 in March. The Expectations Index increased to 113.8 after rising to an upwardly revised 103.9 in March. Overall, consumers’ assessment of current business and labor market conditions improved considerably and they were also much more optimistic about the short-term outlook for business, jobs and personal income prospects. The percentage of consumers expecting business conditions to improve over the next six months continued to increase. Economists say a level of 90 indicates that the economy is on solid footing and a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.
CONSUMER SPENDING RISES 0.1%
Consumer spending inched up 0.1% in February after rising 0.2% in January. Core consumer spending, which is adjusted for inflation, fell 0.3% in January after rising 0.3% in December. The small increase reflects in part an unusually mild winter which lessened demand for utilities. Spending on goods was weak, with purchases of long-lasting durable goods such as vehicles down 0.1%. Personal income posted another solid gain, rising 0.4% in February after rising by an upwardly revised 0.5% in January. The combination of a strong gain in incomes and modest rise in spending pushed the savings rate up to 5.6% in February, the highest level since October and up from 5.4% in January. Consumer spending is closely watched by economists because it accounts for 70% of U.S. economic activity.
CONSUMER PRICES RISE 0.1%
The Consumer Price Index (CPI) rose 0.1% in February after rising 0.6% in January and was up 2.7% from February 2016, the biggest annual gain since the 12 months through March 2012. Core consumer prices, which exclude food and energy, rose 0.2% in February after rising 0.3% in January and were up 2.2% over the past year. Core inflation has been in a range between 2.1% and 2.3% since December 2015. Inflation was in line with economists’ expectations. The report showed that most major consumer expenses are rising, although energy costs actually fell 1.0% from January, although they were 15% higher than in February 2016.
UNEMPLOYMENT FALLS TO 4.5%
The unemployment rate fell to a seven-year low of 4.5% in March from 4.7% in February and the economy added just 98,000 new jobs, well below expectations of 180,000 new jobs. The rate fell because nearly half a million people reported finding employment. Economists had expected a falloff in hiring in March after job gains in January and February had averaged a robust 237,000. Those increases had been fueled in part by strong hiring in construction, which occurred because of unseasonably warm winter weather. Construction companies added 6,000 jobs in March, the fewest in seven months. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.
DURABLE GOODS ORDERS RISE 1.7%
Durable goods orders rose 1.7% in February after jumping an upwardly revised 2.3% in January. Economists had expected orders to increase 1.2%. Orders excluding transportation, which can be a highly volatile category, rose 0.4% in February after rising an upwardly revised 0.2% in January. Capital goods orders for nondefense items excluding aircraft, which are seen as a proxy for business spending, fell 0.1% in February after falling 0.4% in January. Economists had expected Capex orders to rise 0.5%. Shipments of non-defense capital goods excluding aircraft, which are used in the calculation of GDP, climbed 1.0% in February after falling 0.3% in January. The durable goods report is often both volatile and subject to sharp revisions.
CHICAGO PMI RISES TO 57.7
The Chicago PMI increased marginally to 57.7 in March after rising 7.1 points to 57.4 in February. New Orders rose by 1.2 points to a four-month high, and Production rose 1.4 points to a 14-month high of 61.7. Order Backlogs rose for the third consecutive month but remained below breakeven. Prices Paid continued to climb, with the Q1 average at the highest level since third quarter of 2011 and 12.1% above the fourth quarter of 2016. Inventories rose 2.1 points to 60.5. Almost half of the respondents to the special question asked with the survey were more confident about future orders rising while 41% expected orders to remain at about current levels. The March reading marked the tenth month of expansionary business activity in the U.S.
WHOLESALE PRICES RISE 0.3%
The Producer Price Index (PPI) rose 0.3% in February after rising 0.6% in January. Wholesale prices were up 2.2% from February 2016. Wholesale costs have been rising from extremely low levels seen last summer, largely because of a rebound in the price of oil. Costs of other commodities have also climbed as the global economy has improved. Excluding energy, food and services for wholesaling and retailing, producer prices increased just 0.3% in February and were up 1.5% year-over-year. The PPI for inputs to construction was up 3.6% year-over-year. Steady consumer demand and more stable commodity costs are expected to keep producer prices moving upwards; the strong dollar could moderate increases.
Q4 GDP REVISED UP
GDP growth in the fourth quarter was revised up to 2.1% from the second reading of 1.9%, according to the Commerce Department. Consumer spending for the quarter was revised up to 3.5% from both the second estimate of 3.0% and the initial estimate of 2.5%. Adjusted-pretax corporate profits rose at a 0.5% annual pace in the fourth quarter after a nearly 6% gain in the third quarter. Profit figures are adjusted for depreciation and the value of inventories. The increase in inventories was revised to $49.6 billion from $46.2 billion. The increase in government spending was dropped to 0.2% from the previously estimated 0.4%. Inflation as measured by the PCE index, the Fed’s preferred benchmark, was raised to a 2% annual rate from the previous reading of 1.9%, finally reaching the Fed’s target of 2%.
JOB OPENINGS RISE
Job openings rose to 5.626 million in January after rising to an upwardly revised 5.539 million in December according to the Job Openings and Labor Turnover Survey, or JOLTS. Analysts had expected the number of job openings to decline. Voluntary separations, or quits, surged in January, pushing the total number of quitters to a cycle high. While the labor market is close to what economists refer to as full employment, the Federal Reserve would like to see faster wage growth. A rising quits rate signals increasing worker confidence in the labor market and generally leads to faster wage growth. The JOLTS report is one of Fed Chair Janet Yellen’s preferred economic indicators.
FED RAISES INTEREST RATES
As expected, the Fed raised interest rates 0.25% in March to a target range of 0.75% to 1.0%, an increase
of 25 basis points. The increase was based on a series of strong economic reports in January and signs of increasing inflation. The Fed uses the spending-based personal consumption expenditures (PCE) index as its preferred inflation guide over the consumer price increase. The PCE jumped 0.4% in January and was up 1.9% over the last 12 months, very close to the Fed’s inflation target of 2.0% for the first time in nearly five years. The Fed voted 9 to 1 to raise rates. Analysts now expect two more increases this year and three next year, which would bring the benchmark rate to 2.1% by the end of 2018, still historically very low. Fed Chairman Janet Yellen said that the increase signifies the economy is strong and healthy, and expected to remain so. Moody's Analytics Chief Economist Mark Zandi said that the economy can easily absorb more rate increases, because the job market is very strong, with layoffs at all-time lows and a record number of open job positions. In addition, the number of people quitting their jobs is back to levels seen in the best of times.
FED GROWTH PROJECTIONS
Policymakers now expect 2.1% GDP growth in 2017 with unemployment dropping to 4.5% by the end of the year. Similar growth is expected in 2018. GDP growth is expected to drop to 1.9% in 2019. All the projections are well below President Trump’s goal of at least 3% annual economic growth.
NATIONAL DEBT WILL KEEP GROWING
The national debt is on track to keep rising over the next three decades, according to the Congressional Budget Office’s annual report on long-term federal spending and revenue. Federal debt has doubled since 2008 to about 77% of GDP, and will reach 150% of GDP in 2047, the highest level in the nation’s history. The CBO warned that such high and rising debt would have serious budgetary and economic consequences, putting more pressure on the rest of the budget and limiting lawmakers’ ability to respond to fiscal crises.
TRADE PARTNERS TO BE AUDITED
President Donald Trump signed an executive order the end of March calling for an audit of all major trade partners within the next 90 days to determine which countries are using abusive trade practices such as currency manipulation and non-tariff barriers to run export surpluses.
© Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.