The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
Despite a growing economy and strong labor market, Americans didn't shop as much as retailers expected last quarter, leaving some puzzled over the disconnect. Many retail giants posted dismal earning results for the first quarter. Among the problems: same-store sale declines, falling traffic, and an inability to predict apparel trends. Even industry insiders aren't sure what's going on, and some say that the retail doldrums are bringing back memories of the last recession. However, economists may have some answers.
Though consumers are doing much better than they did in the immediate post-recession recovery, some worry lingers, causing people to save more instead of spending. As the cost of housing and healthcare has increased, many Americans also don't have as much discretionary money to spend.
The good news is that Americans are still spending-just not the same way they did in the past. An increasing number-particularly Millennials-prefer to spend what they have on things like services, dining out, and concerts. Americans are shifting to online spending, which hurts brick-and-mortar retailers that rely on foot traffic. While Commerce data shows that overall retail sales grew 3.0% since last April, the category that includes online retailers and shopping apps grew 10.2%.
More current data also paints a more reassuring picture. The most recent report by the Commerce Department shows that monthly retail sales increased 1.3% in April, much higher than the 0.8% increase Wall Street expected. So-called core spending, a retail sales control category that economists use to estimate underlying consumer spending, grew 0.9%, causing economists to raise their forecasts for second-quarter economic growth.
The chart below shows the most current unofficial forecast of Q2 Gross Domestic Product (GDP) maintained by the Federal Reserve Bank of Atlanta. You can see that the forecast has been revised upward over the last two weeks as new data is released.
So, does the fact that retailers had a bad quarter indicate we're in a recession? Not really. Americans are spending money; they're just changing where and how they spend, and the retail industry needs to adapt to those changing preferences.
Looking ahead, we have some housing and manufacturing data coming out this week as well as minutes from the last Federal Reserve Open Market Committee meeting. While analysts aren't expecting major revelations from the meeting notes, they're hoping for more guidance on when to expect another interest rate increase. While an April survey of economists showed that 75.0% expected a June rate hike, the May survey shows that expectations have split, with 31.4% forecasting a June increase and 31.4% targeting a September increase.
Monday: Empire State Mfg. Survey, Housing Market Index, Treasury International Capital
Tuesday: Consumer Price Index, Housing Starts, Industrial Production
Wednesday: EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey
Friday: Existing Home Sales
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices, and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the SPUSCIG. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Jobless claims jump to highest level since February 2015. The number of Americans filing new claims for unemployment surged unexpectedly, touching off concerns about a labor market slowdown. However, claims remained below the key 300,000 threshold, suggesting that the jump may be seasonal.
Job openings near record highs. There were over 5.5 million job openings in March, indicating that employers are keen to hire. The rate of people voluntarily quitting their jobs remained stable at 2.1%, showing workers are still confident of finding new jobs.
U.S. business inventories rise. U.S. businesses increased their stockpiles by the biggest amount since last June, indicating they expect a good summer.
Consumer sentiment rises more than expected. A measure of consumer optimism about the economy jumped far more than expected, indicating that Americans are feeling more upbeat about their prospects despite some uncertainty around the November elections.
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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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