There is now growing evidence that the economy’s deceleration that followed the collapse of oil related capital expenditures at the end of 2014 continued for about two years after which it reversed course.

This means the collapse in private sector deficit spending was replaced by other sources of deficit spending, some of it public, the rest private. The increase in private sector deficit spending was apparently not bank financed, as indicated by bank lending statistics, so seems it must have been done in the capital markets.

First quarter weakness, if not reversed in q2, would indicate the contribution of private sector deficit spending is fading, as happened with consumer credit:

The resumption of oil capex is part of the answer:

Note the dip followed by a recovery:

This is not contributing to the apparent reversal:

Highlights

Consumer credit came in on the low side of expectations, up $11.6 billion in March with February revised $3.0 billion higher to $13.6 billion. Revolving credit is once again the weak spot, down $2.6 billion in the month following a $0.5 billion decline in February. Weakness in revolving credit, which includes credit cards, explains at least part of the slowdown in first-quarter consumer spending. Non-revolving credit, which includes both student loans and vehicle loans, rose $14.2 billion in both March and February.

Interesting reversal- historically happens after a recession:

Auto sales continue to slow:

The BEA released their estimate of April vehicle sales this morning. The BEA estimated sales of 17.07 million SAAR in April 2018 (Seasonally Adjusted Annual Rate), down 1.7% from the March sales rate, and up slightly from April 2017.
Read more at http://www.calculatedriskblog.com/#kXZuxyjWLR2MW4ME.99

Light truck sales were slowing until getting a boost from the hurricanes:

As previously discussed, something has to give to bring the savings rate inline, and the low reported personal consumption expenditures are a step in that direction, and housing has also been soft, as were prices. Also, while inventory building adds to GDP, combined with slower sales growth it doesn’t bode well for the future:

Highlights

A sharp rise in service spending helped keep first-quarter GDP in the respectable range, at an annualized 2.3 percent rate and 3 tenths above Econoday’s consensus. Service spending contributed nearly 1 full point to the result and offset a sharp decline in spending on durables. Consumer spending in total rose at a 1.1 percent pace, subdued but still positive.

Business spending also helped the quarter, contributing 8 tenths of a point with strength here including both structures and equipment. But residential investment, after spiking in the fourth quarter, couldn’t pull its weight and contributed zero to the latest quarter.

Inventories, which had been too low relative to demand, are a welcome positive in the report, rising $33.1 billion and adding 4 tenths to the quarter. Imports are once again the biggest negative, subtracting 4 tenths in a quarter that marked the imposition of metal tariffs. But in more than an offset, exports rose 0.6 percent to make for a 6 tenths positive contribution from net exports. Government purchases are also a positive, adding 2 tenths.

Price readings are a negative surprise in the report, with the chain-weight GDP price index rising at only a 2.0 percent rate which is well short of expectations for 2.4 percent.

It was a moderate quarter for the economy especially for the consumer whose spirits waned a bit despite the big tax cut and continuing strength in the labor market. As for spending, given the moderate gains for services in February and January, the strength in this component in today’s report implies a sharp gain for services in Monday’s personal income & outlays report which will unbundle March’s contributions to the quarter. Also note the decline in durable spending largely reflects the quarter’s soft showing for vehicle sales which however did show promise going into April with the first indication on second-quarter consumer spending coming from next week’s unit vehicle sales results.

Growth has stabilized after dropping by about 4.5% which is about $570 billion per year or about 3% of GDP per year:

Last month revised up, but this month down that much and more, indicating q1 was weaker than first reported:

Highlights

Construction spending data are known for their volatility which should limit the surprise from a very unexpected 1.7 percent decline in March, far below Econoday’s consensus range. The housing sector is the weakness in the report with residential spending down 3.5 percent in the month including dips for both single-family homes, down 0.4 percent, and multi-units, down 2.7 percent. Home improvements, which have been soft, fell 8.0 percent in the month.

But the minus signs don’t stop here with private non-residential spending, held down by continuing weakness in factory spending and a monthly downturn for commercial spending, falling 0.4 percent in the month. Spending on public building is mixed with highways & streets showing a gain offset by a flat result for educational building.

Today’s data are a surprise for forecasters but are offset by a heavy upward revision to February, now at plus 1.0 percent from an initial 0.1 percent gain, and may paradoxically build up expectations for a construction rebound in coming reports. Watch for housing comments in tomorrow’s FOMC statement and also construction payrolls, which have been strong, in Friday’s employment report.

Another chart that indicates we could already be in recession:

Yet another source of credit growth for 2017 I hadn’t seen:

Smartphone sales have been a substantial source of US GDP growth:

Trumped up expectations reversing?

Growing modestly, and still below levels of the early 1970’s, and well below levels of the 2001 recession. The chart is not adjusted for population:

Must be some tax thing driving multifamily last month:

Highlights

The residential construction business had a very strong March: housing starts easily topped Econoday’s high estimate at a 1.319 million annualized rate while permits came in just shy of the top estimate at a very strong 1.354 million.

Multi-family units are the standout in the March report. Starts for this group rose 14.4 percent in the month to a 452,000 rate with permits 19.0 percent higher at 514,000. Single-family units are soft with starts down 3.7 percent to an 867,000 rate and with permits down 5.5 percent to an 840,000 rate in a result offset by a large upward revision to February.

One clear negative, perhaps tied to weather, is a slowing in completions which fell 5.1 percent to 1.217 million. This is not good news for a housing market starved of supply.

Housing had an uneven start to the year with March sales results still to be posted. Sales side, residential investment looks to be a positive contributor to first-quarter GDP as housing construction ended the quarter with visible momentum going into the second quarter.

Chugging along at modest rates of growth, back to the highs of several years ago:

Eine neue wissenschaftliche Wahrheit pflegt sich nicht in der Weise durchzusetzen, daß ihre Gegner überzeugt werden und sich als belehrt erklären, sondern vielmehr dadurch, daß ihre Gegner allmählich aussterben und daß die heranwachsende Generation von vornherein mit der Wahrheit vertraut gemacht ist.

“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”

Max Karl Ernst Ludwig Planck

Yellen and other economists say tax cuts are blowing up the budget

Former Federal Reserve Chair Janet Yellen and a team of economists argue that tax cuts are blowing a hole in the federal budget.

The argument, made in a Washington Post op-ed, rejects a Hoover Institution study that blamed entitlements for trillion-dollar deficits forecast for the years ahead.

Though Fed leaders including Yellen and others for years pleaded for fiscal assistance from Congress, the op-ed argues that the stimulus was ill-timed.

More evidence higher rates cause inflation?

The ECB is concerned about euro strength cutting into exports. Hence that makes them more likely to continue with negative deposit rates, etc. However in my humble opinion the negative rates contribute to a strong euro as well as low inflation (via the interest income channels, etc.) which means they, along with all the major CB’s, have it backwards.

To again quote the hairdresser, ‘no matter how much I cut off it’s still too short’…

ECB members considered that a strong euro may weigh on inflation outlook and that developments in foreign exchange markets continued to be a significant source of uncertainty, minutes from the ECB’s March meeting showed.

Highlights

In mixed results, March payroll growth of 103,000 is well below expectations but wage indications from average hourly earnings do show a little pressure as was expected, up 0.3 percent on the month with the year-on-year rate up 1 tenth to 2.7 percent. The unemployment rate did not move down which was the consensus, instead holding steady at what is still a very low 4.1 percent.

Looking first at payroll growth, February and January have been revised with a net of minus 50,000 the result. The first quarter average of 202,000 is a bit below the fourth quarter’s 221,000. The breakdown for March shows another very strong showing for manufacturing, up 22,000 which hits Econoday’s consensus, and with professional & business services, a key component for tracking labor demand, rising a respectable 33,000. Yet the temporary help subcomponent for this reading fell 1,000 after rising 21,000 in February. And construction payrolls, which have been on the rise, fell 15,000. Retail also fell, down 4,000 in the month.

Judging by today’s results, the labor market wasn’t quite as hot as previously expected which turns down concern over wages even though those pressures did rise tangibly in March. On net, the March employment report will not likely turn up the heat on the Federal Reserve to increase its pace of rate tightenings.

Still looking like it’s been going downhill for over two years:

I don’t see any ‘acceleration’ here:

Highlights

Consumer spending was soft in February and part of the reason was reluctance to run up credit cards. Revolving credit inched only $0.1 billion higher in February for the lowest result in 4-1/2 years. Nonrevolving credit, where student loans and vehicle financing are tracked, did rise $10.5 billion in the month which, however, is soft for this reading. Together they make for a $10.6 rise in total consumer credit which is well under Econoday’s low estimate. These results point to a cautious consumer and hint at trouble for the consumer’s contribution to first-quarter GDP.

Decelerating again after the mini spike in December that may have been used to buy Bitcoin: