The March Continues into April
The Philly Fed’s manufacturing index came in at 8.5 in April, falling from its March reading of 13.7 and coming in below economists’ expectations. This index was as high as 32.3 at the beginning of last year and has steadily marched downward. More notably, the future activity outlook fell to its lowest level since February 2016 (all this doesn’t make me feel too warm and fuzzy). Manufacturing has been a weakness in the economy lately driven by a stronger US dollar, weaker growth overseas (though Chinese economic data for first quarter came in ahead of expectations with an 8.5% jump in industrial production), and trade tensions.
Moral of the story: A print above 0 for this index is indicative of improving conditions, so things still look pretty great, just not as great as they were last year. However, new orders increased pretty significantly this month, which is generally an encouraging forward signal.
US retail sales posted the largest gains in a year and a half in the month of March, rising 1.6% and coming in significantly higher than the expected 1.1% gain. Retail sales grew in every category except stores selling books, musical instruments, and hobby items (I clearly didn’t frequent the neighborhood bookstore or AC Moore nearly enough this month, my bad) and traditional brick-and-mortar department stores saw flat sales (but tbh I will take this over a negative print).
Moral of the story: This rebound in retail sales supports the Fed’s view on economic strength returning after the slow growth we saw in the first quarter. While the economy isn’t likely to emulate last year’s growth, data is starting to point us away from negative growth toward slower growth.
Earnings are here (part 2)
This week brought earnings from the rest of the big banks and in this space, both Goldman Sachs and Citigroup reported earnings that were better than expected but revenues that came in below street expectations. Aside from the financials sector, we also saw earnings from big names like Johnson & Johnson, PepsiCo, IBM, Netflix, and CSX.
Moral of the story: Earnings so far have been better than expected – over 78% of the companies have exceeded analyst expectations. However, it’s important to keep in mind that going into this earnings season, the market was more scared than optimistic, so the bar was set fairly low. So far, first quarter growth has come in at 5.6%, which is significantly lower than the 21.02% growth these same companies reported for the last quarter of 2018. However, it’s a relief to see positive growth numbers given so many have been fearing negative earnings growth being the catalyst for a recession.