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Economics | Weekly Economic Report
Monday, April 30, 2018Ed [email protected]
Sean [email protected]
Dick [email protected]
Stan [email protected]
Jaewoo [email protected]
Rebecca [email protected]
Weekly Economic Report
1
U.S Economy Stronger
Positive readings last week for:
S&P earnings.
EVRISI company surveys.
Consumer confidence.
Household formation.
Home ownership.
Rig count.
New house sales.
Existing house prices.
Inflation Moving Up But Still Restrained
The core PCE deflator accelerated to +1.9% y/y.
GDP price deflator was up +1.9%.
The ECI increased +2.7%.
Australia’s core CPI increased +1.7%.
US bond yields were unchanged w/w at 2.96%.
Money, Money, Money!
It was just another week. There were 52 deals announced totaling
$261b, or at almost a $14t annual rate, eg, Didi Chuxing $80b IPO
and Comcast $31b offer for Sky.
There’s lots more in the following SUMMARY
April 30, 2018
2
SUMMARY
Blowout Week for S&P Earnings
The bottom-up estimate for 1Q earnings surged from a $146
seas adj annual rate to $153, up +22% y/y. That’s with 267
companies having reported. When the earnings season is
complete, earnings are likely to be $154, up +24% y/y.
At this rate, earnings could reach $170 in 4Q of this year. If
from that level, earnings increase +6% per year through 2021,
they will end up at $202.
April 30, 2018
3
U.S. Economy Accelerating
These 3 fit together and suggest that the US economy is
accelerating.
1. EVRISI company surveys increased +0.7 last week to 56.4,
a 13-year high and a level consistent with over +3.5% real
GDP growth.
April 30, 2018
4
U.S. Economy Accelerating Contd
2. Consumer confidence remained at a 17-year high in Apr.
This is a composite of U of Mich, the Conf Bd, and
Bloomberg.
April 30, 2018
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U.S. Economy Accelerating Contd
3. We have identified 75 cities across the US that are doing
well. This fits with the elevated levels of our company
surveys and consumer confidence.
April 30, 2018
6
U.S. Economy Accelerating Contd
Because of the tendency for 1Q real GDP to slow q/q, its y/y gives
a truer picture. 1Q real GDP this year accelerated to +2.9% y/y.
This fits EVRISI company surveys which moved up in 1Q.
April 30, 2018
7
U.S. Economy Accelerating Contd
This strength in local economies helps explain why existing house
prices for Mar, which were reported last week, increased +5.8%
y/y.
April 30, 2018
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U.S. Economy Accelerating Contd
Real GDP growth from +2.9% y/y in 1Q seems likely to accelerate
in coming quarters. These are the lifts.
POLICY LIFTS TO REAL GDP GROWTH IN 2018
1. Consumer tax cuts.
2. Corporate tax cuts.
3. Repatriation.
4. Increased federal spending.
5. Deregulation.
ECONOMIC LIFTS TO REAL GDP GROWTH IN 2018
1. Faster wage increases.
2. Lower dollar.
3. Surge in earnings.
4. Household formation increases.
5. Rig count rises.
April 30, 2018
9
U.S. Economy Accelerating Contd
Increases in household formation are the principal underlying
driver of housing and many related consumer purchases.
The “new economy” is also a lift for GDP. In 1Q it accounted for
roughly 10% of real GDP growth.
April 30, 2018
10
Inflation Moving Up But Not Sharply
Because the core PCE deflator declined -0.15% m/m in Mar of
last year, the implied increase from last week’s GDP report of
+0.13% m/m in Mar of this year spiked the y/y to +1.9%. The
quarter was just +1.7%. The PCE deflator hasn’t been
meaningfully above +2.0% since 1994.
April 30, 2018
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Inflation Moving Up But Not Sharply Contd
The slack of 29.4% of working age population not employed helps
explain why there has been little acceleration in wages: The ECI
accelerated to just +2.7% in 1Q, putting it close the the Phillips
Curve line using the “NON-EMPLOYMENT RATE”.
If this framework is correct, then wages may continue to be
constrained, even if the U3 rate continues to decline.
April 30, 2018
12
THE GREAT EXPANSION
This is premature, but if the expansion lasts, say another three
years, it may get a title. For example, there were the “Roaring
Twenties”, Japan’s “Bubble Years”, and the “US Tech Boom”.
Inflation was low in all these “great expansions,” restrained by
technology revolutions.
Markets Last Week Volatile But Unchanged W/W
The S&P was unchanged.
Bond yields were unchanged.
Oil was unchanged.
We haven’t had a week like this in a very long time.
The dollar was not quiet; it rallied +1.3%.
April 30, 2018
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2017 2018 f 2019 f
Real GDP 2.5% 3.5% 2.5%
GDP Price Deflator 1.9% 2.5% 2.5%
Nominal GDP 4.4% 6.0% 5.0%
Fed Funds Rate* 1.50% 2.50% 3.25%
10-Year Bond Yield* 2.40% 3.25% 3.75%
S&P EPS $130 $160 $170
Avg. Employment Change +170k +150k +125k
Unemployment Rate* 4.1% 3.5% 3.0%
* Year-end
Evercore ISI U.S. Outlook
April 30, 2018
14
There are key domestic economic releases almost every day this week with the deflators,
vehicle sales, and payroll as keys. Although the m/m change in the core PCE deflator is likely
modest, the y/y change will jump to +1.9%. Motor vehicle sales likely rose to 17.6m in Apr from
17.4m in Mar. We estimate payroll employment rose +175k in Apr and the unemployment rate
slipped to 4.0%. Average hourly earnings likely advanced +0.3% m/m, which will put the y/y gain
at +2.7%.
Overseas, Canada’s PMI likely slipped in April.
Stan Shipley 04/30/18
Heavy Calendar of Data This Week
Consensus Evercore ISI Actual
Monday, April 30
UNITED STATES Mar Apr
1. Texas Mfg Index 21.4 25.0 18.0
Feb Mar
2. Core PCE Deflator Y/Y % +1.6% +1.9% +1.9%
Tuesday, May 1
UNITED STATES Mar Apr
3. Vehicle Sales 17.4 17.2 17.6
4. Mfg ISM 59.3 58.5 59.5
Feb Mar
5. Construction Spending +0.1% +0.5% +0.7%
Wednesday, May 2
UNITED STATES Mar Apr
6. ADP Employment +241 +204 +170
Thursday, May 3
UNITED STATES Apr 21 Apr 28
7. Unemployment Claims 209 215 220
4 Wk. Avg. 229 222 223
Friday, May 4
UNITED STATES Mar Apr
8. Payroll Employment +103 +185 +175
Unemployment Rate 4.1% 4.0% 4.0%
Average Hourly Earnings +0.3% +0.2% +0.3%
CANADA Mar Apr
9. PMI 59.8 59.2
April 30, 2018
15
2
Mon
Apr 30
Economic Estimates
1 of 1 Stan Shipley
212 446 9474
917 463-6773
May 01 May 02 May 03 May 04
8:30 10:00 8:30 8:30
Feb +0.4% Mar 59.3 Apr 21 209 Mar +103 Mar +0.3% E +0.4% C Apr 59.5 E 58.5 C 8:15 Apr 28 220 E Apr +175 E +185 E
Mar +241
Feb +0.2% 10:00 Apr +170 E +204 C Mar +22
Mar +0.4% E +0.4% C Feb +0.1% Apr +15 E +21 C
Mar +0.7% E +0.5% C FOMC RATE 8:30
Feb +0.2% Feb -$57.6 Mar 4.1%
Mar +0.1% E +0.1% C P.M. Mar -$50.2 E -$55.6 C Apr 4.0% E 4.0% C
Mar 17.4
9:45 Apr 17.6 E 17.2 C 8:30 Mar 0.3%
Mar 57.4 Feb +1.2% Apr 0.3% E 0.2% C
Apr 58.0 E 58.0 C Mar +1.5% E 1.3%
10:00
Feb +3.1%
Mar +0.5% E +0.5% C CHALLENGER LAYOFF TALLY
10:30 MARKIT/IHS COMPOSITE
Mar +21.4
Apr +18.0 E +25.0 C
May 08 May 09 May 10 May 11
MORTGAGE DELINQUENCY * 6:00 8:30 8:30
Mar 104.7 Apr 28 220 E Mar 0.0%
3:00 Apr 104.0 E 8:30 May 5 230 E Apr +0.3% E
Feb +$10.6 Mar +0.3%
Mar +$15.2 E 10:00 Apr +0.5% E Mar -0.1%
Feb 6.052 Apr +0.2% E
Mar 6.100 E Mar +0.3% 8:30
Apr +0.1% E Mar -0.1% 10:00
Apr +0.4% Apr 98.8
Mar +0.4% 1H May 98.0 E
Apr +0.2% E Mar +0.2%
Apr +0.3% E
WHOLESALE INV
2:00
Mar -$208.7
Apr -$5.0 E
* May 7 to May 11
UNEMP RATE
PAYROLL EMP
MFG EMP
Monday Apr 30
Monday May 07
CONSUMER COMFORT
UNEMP CLAIMS PMI MFG
TRADE BALANCE
MORTGAGE APPS
ADP EMP
PERSONAL INCOME
CONSTR SPENDING
CONS SPENDING
CONS PRICE DEFL
MFG ORDERS
AVG HOURLY EARN
UNIT LABOR COSTS
CONSUMER SENT
NFIB
VEHICLE SALES
JOLTS OPENINGS
CHICAGO PMI
PENDING HOME
TEXAS MFG INDEX
REAL AVG. EARNINGS
CORE CPI
IMPORT PRICES
PPI
CPI
CONSUMER COMFORT
UNEMP CLAIMS
CORE IMPORT
MORTGAGE APPS
BUDGET GAP
CORE PPI
CONSUMR CREDIT
EX FOOD, TRADE, ENERGY
April 30, 2018
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DISCLOSURES
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April 30, 2018
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