April 27, 2018
U.S. Growth Cools to 2.3% as Gains in Consumer Spending Ease
U.S. economic growth cooled last quarter as consumers pulled back following outsize spending in the prior period, though solid business investment cushioned some of the weakness. Gross domestic product, the value of all goods and services produced in the nation, rose at a 2.3 percent annualized rate after climbing 2.9 percent in the prior quarter, the Commerce Department reported Friday. The median forecast of economists surveyed by Bloomberg called for a 2 percent gain. Consumer spending, the biggest part of the economy, rose 1.1 percent, matching estimates and marking the smallest gain since 2013. While GDP growth was the best for any January-March period since 2015, it’s a step down from three quarters of GDP growth above or near 3 percent, and a reminder that the first quarter remains plagued by data quirks. Analysts expect a rebound as tax cuts take hold amid a strong job market, though tailwinds such as low inflation and borrowing costs are starting to dissipate, and trade tensions represent a headwind. “The first quarter has been persistently weak in recent years,” David Sloan, senior economist at Continuum Economics, said before the report. “We expect a rebound. Tax cuts will support consumer spending and business investment,” while “trade is certainly a risk.” A separate Labor Department report Friday showed that a broad measure of employee compensation rose more than expected in the first quarter, adding to signs that the tight job market is supporting a pickup in pay. The 2.3 percent pace of GDP growth is still faster than what the Federal Reserve sees as the economy’s long-term potential rate, and officials have previously said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone in May — the second-longest expansion on record. Investors expect the central bank to raise interest rates in June for the second time this year.
U.K. Consumer Confidence Drops
U.K. consumer confidence slid this month after a year of faster inflation and meager wage gains. GfK’s gauge slid to minus 9 in April, down two points from March and marking the 28th consecutive month without a positive score, the firm said in a report Friday. Measures of personal finances, for both the past year and next 12 months, deteriorated, as did an assessment of the general economic situation. The report underscores the strain which U.K. consumers are under, even as data suggests real incomes may finally be about to start rising. While workers are now enjoying the strongest wage growth in almost three years and sharp price increases are fading, Brexit still clouds the outlook. “The continued uncertain economic forecast means that the sun is not yet shining brightly for U.K. consumers,” said Joe Staton, client strategy director at Gfk. “We need to see clear evidence with our own eyes — in our bank balances and pay packets – that balmier economic climes have returned. ” Data later Friday are forecast to show U.K. economic growth slowed in the first quarter, as bad weather likely took its toll on activity. That may prompt the Bank of England to hold off on hiking interest rates in May — a move that was until recently view as a near-certainty.
Europe Wobbles as Central Banks Rethink Stimulus: Economy Week
The European economy is wobbling after its fastest growth in a decade, prompting central bankers across to continent to ponder just how fast they want to remove monetary stimulus. This is among the topics in our weekly wrap up of what’s going on in the world economy. German business confidence slid to the lowest level in more than a year, the Ifo Institute reported this week, with sentiment also deteriorating in Italy and France. The data underscored concerns that the euro-area is hitting a soft patch with French economic growth cooling in the first quarter. At the European Central Bank, there are reasons for policy makers to be unfazed by the slowdown. President Mario Draghi is for now skirting the debate over when to end asset purchases even as some officials suggest he may now wait until July to outline a plan. The ECB isn’t alone on wondering if it’s racing away from easy money too easily. Sweden’s Riksbank pushed back a plan to raise interest rates for the first time in seven years. Bank of Canada Governor Stephen Poloz has also said more work is needed to heal the scars of the crisis, while the Bank of England has raised doubts over whether it will hike interest rates in May. The Bank of Japan maintained its stimulus program on Friday, while removing language that committed it to delivering 2 percent inflation by fiscal year 2019. Turkey this week raised its key rate by more than expected. Hungary left its unchanged, while Russia and Colombia could cut on Friday.
U.S.-China Trade Dispute Takes a Toll on Japan’s Inflation
The trade fight between the U.S. and China is starting to have an effect, but possibly not where President Donald Trump intended when he imposed extra tariffs on steel and aluminum imports. Pork prices in Tokyo fell in April from a year earlier, and that subtracted 0.04 percentage point from inflation, one of the biggest causes of a weaker-than-expected price rise. China imposed extra 25 percent tariffs on U.S. pork in response to the U.S. tariffs, and that caused more meat to come into Japan, according to a statistics bureau official. The trade dispute is another factor that’s undercutting the Bank of Japan’s efforts to generate sustained inflation. Any increase in U.S.-China trade tensions puts that effort at risk, as it could damage the economic recovery and cause other goods to flow to Japan, depressing prices. Consumer prices in Tokyo, excluding fresh food, rose 0.6 percent in April, decelerating for a second month. Phone prices and hotel costs also subtracted from the rise. Wholesale prices of pork carcasses in Tokyo were down 7.8 percent from a year earlier, according to Agriculture & Livestock Industries Corp.