Economists Trim Estimates for Growth Forecasters in The Wall Street Journal’s monthly survey of economists trimmed their estimates for 2016 employment gains and for economic growth amid market volatility and signs of a cautious consumer.
The average forecast in the survey calls for growth in gross domestic product of 2.1% in the year ahead, down from an estimate of 2.4% last month. The markdown was most dramatic for the start of the year: The economy is likely to grow at a 1.3% annual pace in the first quarter, down from an estimate of 2.1% a month ago. (…)
The Atlanta Fed GDPNow latest forecast for Q1: +0.4% (new forecast to be released today)
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Don’t worry #1: A San Francisco Fed paper last year pointed out that a “statistical quirk” is partly responsible for weak 1Q real GDP. This “statistical quirk” suggests that the U.S. economy will appear to reaccelerate in 2Q of this year. In 1Q of last year real GDP growth was +0.6%. It accelerated to +3.9% in 2Q. In a remarkably consistent pattern over the past 5, 10, and 20 years, US real GDP growth on average has slowed -2 percentage points in 1Q versus 4Q, and then accelerated +2 percentage points in 2Q. For example, over the past 20 years, real GDP growth on average was +3%, +1%, and +3% in 4Q, 1Q, and 2Q, respectively. (EvercoreISI)
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Don’t worry #2:
Fed’s Yellen Joins With Predecessors to Calm Recession Fears Federal Reserve Chairwoman Janet Yellen and three former Fed leaders sought to dispel worries the U.S. is heading back toward recession despite concerns about slow global growth and the expansion’s advancing age.
Ms. Yellen, joined Thursday in an unusual gathering in New York by former Fed Chairmen Ben Bernanke, Alan Greenspan and Paul Volcker, described an economy that is progressing without breeding obvious new financial bubbles that could derail growth.
“This is an economy on a solid course, not a bubble economy,” Ms. Yellen said. It has made “tremendous progress” from the damage of the 2007-2009 financial crisis.
“The domestic U.S. economy is moving forward,” Mr. Bernanke added. “I don’t see any particular reason to believe a recession is any more likely in 2016 than it was in 2015 or 2014.” Though the U.S. expansion is already older than the average post World War II expansion, he said expansions don’t die of old age. Instead, they reverse when imbalances throw off spending and investment. Messrs. Greenspan and Volcker largely concurred. (…)
Taken altogether, their comments marked a sign of guarded confidence from a quartet of the world’s most powerful economic policy makers, past and present, at a moment with political undertones. Republican presidential front-runner Donald Trump has argued the U.S. is a bubble economy heading toward severe recession. The Fed’s own critics have argued its low interest rate policies and repeated bond-purchase programs have inflated financial asset prices and made them prone to decline. (…)
“I don’t think December was a mistake,” Ms. Yellen said. “We remain on a reasonable path.”
Financial bubbles are often marked by large increases in private sector debt and overvalued asset prices. “We certainly don’t see those imbalances,” she said. (…)
Slow and slower
China is not alone slowing down as this U.S. GDP growth chart from Doug Short illustrates:
Apartment-Rental Market Is Losing Steam The apartment-rental market cooled in the first quarter, according to three research companies, suggesting a six-year housing boom might be coming to an end.
The national vacancy rate, which has risen for three consecutive quarters, hit 4.5% in the first three months of the year, up from a recent low of 4.2% in the second quarter of 2015, according to market research firm Reis Inc.
Average rents, meanwhile, increased by 4.1% to $1,248 in the first quarter from a year earlier, compared with the 2015 first quarter’s 5% increase, according to Axiometrics Inc., an apartment research company.
Potentially most alarming to housing economists: Demand for new apartments in the first quarter was about half its typical level. The number of occupied new apartments across the country climbed by just over 20,000 units in the first quarter, compared with the five-year average of about 40,000 for the quarter, according to apartment tracker MPF Research. The firm’s analysts said they aren’t sure if the unexpectedly sharp drop will turn into a long-term trend. (…)
The reports also tend to reflect larger, more expensive buildings owned by national apartment companies. For middle-class renters, the pain of rising rents is unlikely to ease soon because fewer apartments are being built in that price range.
Nonetheless, many of the country’s largest and hottest rental markets already are struggling. New York, San Francisco, Denver and Houston are all softening due to a flood of new construction and renters balking at prices that have risen sharply in recent years.
Developers in those markets are offering concessions such as a month or more of free rent to lure renters. In New York, the share of Manhattan rentals offering such concessions rose to nearly 14% from about 5% a year earlier, according to the Elliman Report by real-estate appraiser Jonathan Miller. The median rental price declined by 2.8% to $3,300, bringing an end to 24 consecutive months of rent increases, the report said. (…)
In San Francisco, the market has pulled back from the nation’s second hottest to the middle of the pack. In the first quarter, the city dropped to No. 20, with rent growth of just over 5%, according to Axiometrics. In the 2015 first quarter, rents posted an annual growth of nearly 13%.
Obama Readies Flurry of Business and Economic Regulations Burst of rule making follows weeks in which the administration targeted tax inversions, imposed new rules on brokers and advanced restrictions on corporate relations with union organizers.
The Obama administration is racing to make final a flurry of regulations affecting broad swaths of the economy, further riling U.S. businesses in an election season that has already been tough on corporate interests.
Planned moves—across labor, health, finance and the environment—range from overtime pay for white-collar workers to more obscure matters such as requiring food makers to disclose added sugar on cartons of flavored milk. (…)
Business uncertainty from Washington may not change anytime soon. Presidential front-runners in both parties have shown greater hostility toward business in some ways, with Democrats promising stiffer regulation and Republicans calling for new tariffs or an end to subsidies.
In his first seven years, Mr. Obama issued 392 regulations deemed “major,” meaning each carries an expected economic effect exceeding $100 million annually. Forty-seven more sat on the drawing board for this year. The tally issued already tops the totals during the eight-year tenures of George W. Bush, at 358, and Bill Clinton, at 361, according to an analysis by George Washington University’s Regulatory Studies Center. (…)
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US government to fight MetLife ruling Treasury to appeal court decision that criticised regulators
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MetLife’s ‘too big to fail’ tag is ‘arbitrary, capricious’: U.S. judge Federal regulators’ decision to designate insurer MetLife Inc as “too big to fail” was “arbitrary and capricious,” the U.S. judge who struck down the determination last month wrote in an opinion that was unsealed on Thursday.
SENTIMENT WATCH
Earnings Season: Why Investors Are Too Bearish As earnings season approaches, bearish investors remain pretty skeptical about the market’s recent rally.
(…) Of course, earnings estimates have a propensity for falling too far just before the reporting period begins. Companies often hurdle the lowered bar. The S&P 500 has risen during three of the previous four earnings seasons, according to John Butters at FactSet.
While such positive “surprises” are nothing new, the market’s reaction to a better-than-expected round of earnings might not be typical. With pessimism, and short interest, so high, earnings surprising to the upside could prolong the recent rally.
The bears may be growling, but the bulls might have the last laugh.
Stock ETFs add sixth week to streak of inflows: Lipper Exchange-traded fund investors showed continued confidence in U.S. markets, delivering stock ETFs based in the country $3.5 billion and their sixth straight week of net new cash during the latest week, Lipper data showed on Thursday.
Stock mutual funds in the United States, by contrast, posted $328 million in outflows in the week that ended April 6, according to the data. (…)
Inflows into stock funds were focused on those invested in U.S.-based companies, which took in $2.3 billion following two weeks of outflows. International stock funds attracted just $888 million, Lipper said. (…)