Tuesday, April 22, 2014

Stronger growth returning to America

Stronger March month activity reinforces that soft data at the start of the year was mostly related to the poor weather.  It will also help take the rough edges off what was shaping up to be a weak GDP report for the first quarter.

Retail sales came in at +1.1% for March, helped along by a sharp increase in automotive sales.  Aside from that sales were solid across most of the other retail groups.  This result along with an upward revision to February should see real consumer spending come in a touch over 2% (annualised rate) in the first quarter of 2014.

Housing starts were up 2.8% to an annualised 946k in March and, as with retail sales, February was revised higher.  Forward looking building permits fell 2.4% but that was on the back of a 7.3% rise in February.  Despite the drop back in permits housing starts should continue to grind higher to around 1.1 million for the year – or around half the rate that prevailed in the lead up to the GFC.
Industrial production was up 0.7% in March which followed a 1.2% gain in February.  Output was up across a broad range of sectors with the 0.5% increase in manufacturing especially pleasing.  We still look to stronger activity in the manufacturing sector to be the catalyst for stronger business investment in the period ahead.

So a good run of data in the last few days. While that should see March quarter still come in a touch under an annualised 1.0%, it gives us confidence we will see a rebound to around 3.5% in the second quarter.  That reinforces for me that the next problem for the US economy is inflation and the next problem for markets is the end of the Fed’s zero interest rate policy – it’s just a question of when.  More on that tomorrow.