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Saturday 6th May 2017
Hi Friend,
Car Crash in April ... Registrations down 20% in the month ...
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It's a car crash in April as new registrations fell by 20% in the month compared to prior year 2016. Should we worry about a slow down in consumer spending? Not really. Retail spending in the first quarter of the year was up by almost 5% compared to the same period last year. Higher inflation meant that more spending bought less in volume terms. Slowing volumes grabbed the headlines but values increased. Don't write off the consumer just yet.
Bumper car sales in March ahead of the increase in Vehicle Excise Duty pulled registrations forward into the first three months of the year. SMMT Mike Hawes suggests year to date sales remain strong up by 1.1%. A record 972,092 cars were registered in the first four months of the year. Diesel car sales are taking a hit. Sales were down 27% in the month and down by just over 6% year to date. Consumers are confused about diesel! For the year as a whole we expect registrations to be just over 2.7 million. A modest increase on the 2016 record.
Over in the U.S. the Fed held rates at current levels signalling two further rate rises this year. Non farm payrolls rebounded in April with 211,000 joining the labor market, pushing the unemployment rate down to 4.4%. It hasn't been that low since May 2007. The President tweeted "Jobs, Jobs, Jobs" "Great jobs report! It's all beginning to work." Maybe running the economy is easy after all. Recruitment difficulties are increasing raising fears of a wage hike. The President may have to relax the rules on immigration and make a hole in the big beautiful wall to ensure "It" will continue to work ...
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In other news this week ... Markit/CIPS updates ...
Construction growth picked up in April, driven by civil engineering activity, according to the Markit/CIPS Construction PMI. It was the sharpest increase in activity this year. The lead index jumped to 53.1 from 52.2 prior month. Greater demand led to greater hiring. The availability of sub-contractors became more restricted adding to the challenges in recruiting skilled labor. Demand for construction materials increased with supply lead times extending to the greatest degree since June 2015.
Manufacturing increased to a three year high according to the Manufacturing PMI. The data suggested a strong start to the second quarter, following the 2.8% growth in the first quarter. The lead index leapt to 57.3 from 54.2 last month. Demand at home and in export markets remained strong. Concerns about cost inflation were evident. Advance purchase action, to hedge against further price hikes, was also significant in the month report.
The service sector continues to deliver. The rate of growth accelerated in the month. The lead index increased to 55.8 from 55.0 in March. Strong demand is leading to a modest increase in job expansion with cost fears again evident in the sector.
Overall the survey data suggests GDP growth is likely to continue into the second quarter at a similar rate to the first quarter. Last week, the preliminary estimate of GDP confirmed growth of 2.8% in manufacturing, 1.9% in construction and 2.5% in the service sector. Whilst many focused on the slowing quarter on quarter growth rate, we always focus on the year on year growth rate. It must have been around 2.4% given the strong growth in production, services and construction.
In the UK. growth is above trend, inflation is rising, unemployment is falling, recruitment difficulties are increasing. In the U.S. the Fed is making the move. In the U.K. the Bank of England must act soon. It is not just "behind the curve ... it's asleep at the wheel ..."
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Healthcare ... everyone likes a winner ...
The White House had a win this week. Well two actually. The health care bill squeezed through congress by 217 votes to 213. Trump was determined to win it. Even though many aren't sure he knows what's in it. The same may well be said of the majority in Congress Republican or Democrat. It is 126 pages after all. A big read with lots of detail. It will still have to toil through Senate. Not quite home and dry just yet.
In a second win, the government shut down was avoided last week. The near $1.2 trillion Spending Bill was pushed through Congress to provide forward funding until the end of September. A modest increase ($15 billion) for the armed forces and $1.5 billion for more border security were included but no money for the wall. That great big beautiful wall to be paid for by the Mexicans or NATO will just have to wait.
Big cuts in spending plans were denied by the Democrats. Modest claims for success were made by the Republicans. The President signed the bill whilst at his golf club in New Jersey. The negotiating round clearly a handicap, Trump railed against the "archaic" rules of democracy. Budget Director Mick Mulvaney said the President "is frustrated with the fact that he negotiated in good faith with the Democrats and they went out to try and spike the ball and make him look bad". Imagine that, spiking a golf ball!
The week had started well for Trump. Avoiding the White House Correspondents' Dinner, the President attended a Trump rally in Pennsylvania. Usual mantras apply. Fake News, Enemy of the People, Build That Wall, Make America Great Again. The President likes to relate the poem about the snake. Woman finds dying snake, takes it home, feeds it, waters it, loves it. Snake recovers, woman clutches snake to bosom, snake bites woman, woman dies. "Bad snake". Not really that's what snakes do.
Allegedly a metaphor for border control and immigrants, the story is in danger of becoming more of a metaphor for democracy and the Trump administration. Trump loves the rally. Set piece, same speech, adoring fans, no nasty questions, like that John Dickerson from CBS News. Trump abruptly ended an interview this week when the man from "DeFace the Nation" pushed for answers about Obama and the wiretapping.
Trump dislikes the free press and the archaic democratic process but appears to have a begrudging admiration for autocrats. Putin in Russia, Erdogan in Turkey, Kim Jong-Un in North Korea are oft mentioned. This week he invited President Rodrigo Duterte to the White House. Duterte has promised to eradicate drugs, crime and corruption in the Phillippines using "every means at his disposal", including state assassination. Left and right were appalled by the invitation. Why the fuss? The President is just looking for tips on how to deal with MS-13, "the most dangerous gang in the world" outside of Congress. They, along with the failing New York Times, are the real enemy of the people.
That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here or check out the Facebook page here
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So what happened to Markets?
The Dow closed at 20,944 from 20,950. The FTSE closed at 7,297 from 7,224.
Sterling was up against the Dollar to $1.296 from $1.294 and was down against
the Euro to €1.179 from €1.187. The Euro moved up against the Dollar to 1.099 from 1.089.
Oil Price Brent Crude closed at $48.96 from $51.64. The average price in May last year was $46.74. The inflation impact fades into the second quarter.
UK Gilts
- yields moved up. UK Ten year gilt yields closed at 1.12 from 1.10. US
Treasury yields moved up to 2.36 from 2.32. Gold closed at $1,225 from $1,269.
John
That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. It's usually a sell out so make sure you book now! As always we appreciate your support. "Join the Club" for those special insights into currencies and markets. Your support will boost our research and improve the products we offer.
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