U.S. economy charges forward

Author: Portfolio Specialist Group

April 30, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

U.S. GDP surprises to the upside

  • The U.S. economy expanded at a 2.3% annualized pace in the first quarter of 2018. While GDP decelerated from 2.9% in the prior quarter, the results were better than expected considering Q1 data tends to lag the rest of the year due to seasonal adjustments.
  • Business investment supported the gain, rising 7.3% in part to a double-digit jump in nonresidential structures. Exports were also a source of growth, moving 4.8% higher in the quarter to reflect improved competitiveness in the U.S.
  • Consumer spending slowed to its weakest pace in five years with only 1.1% growth from the prior quarter, though much of the slow-down could be attributed to artificially elevated levels last year brought on by hurricane-related rebuilding.

European Central Bank maintains a restrained stance

  • The European Central Bank left policy rates unchanged as widely expected, with the attention of investors mostly focused on accompanying statements.
  • President Mario Draghi was discreet in guidance towards future plans, as his comments mirrored prior statements and downplayed recent softness in economic data.
  • Draghi says rates will stay put “for an extended period of time” and well past the horizon of asset purchases. The current €30 billion of monthly stimulus is scheduled to end in September, though Draghi has maintained the central bank will extend if needed to ensure inflation reaches a sustained level.

Bank of Japan holds, economic data mixed

  • The Bank of Japan (BoJ) held policy rates at current levels in an 8-1 vote. In a surprising move, however, the BoJ pulled its previously publicized timeline for reaching its 2% inflation target in an effort to prevent markets from betting on additional easing in instances where the central bank pushed back timing.
  • In other Japanese data reported, industrial production doubled expectations with a 1.2% gain in March to improve annualized growth to 2.2%. Retail sales fell 0.7% in March, slowing year-over-year growth to 1.0%.
  • The jobless rate was unchanged in March at 2.5%, holding 25-year lows, as over 66 million people are currently employed in Japan.

Other economic news

  • U.S. existing home sales rose 1.1% in March, with positive gains in both single-family units (0.6%) and condos (5.2%). Inventory volumes recorded a 7.2% decline in listings from a year ago as homes stayed on the market for an average of 30 days in March. Tight inventories also impacted new home sales, which reached a four-month high in March with a 4.0% gain.
  • The Eurozone Manufacturing PMI fell to 14-month lows in April with a 0.6 decline to 56.0, though activity remains well within expansionary territory. Meanwhile, manufacturing activity in the U.S. reached a three-and-a-half year high of 56.5 as output and new orders advanced. In Japan, the Manufacturing PMI ticked up slightly to 53.3 in April, from 53.1 previously.

What’s to come

U.S.employment highlights a busy week

  • U.S. payroll data is expected to rebound after a disappointing result in the prior month. The U.S. Federal Reserve is also set to meet during the week, though rates are expected hold steady until June. Canada will report GDP data on Tuesday, followed by eurozone GDP on Wednesday.

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