Week in review: Disappointing US data trend continues

Week in review

Canada – Wholesale sales fell 0.4% in February with decreases in three of the 7 subsectors, namely autos/parts, building materials, and machinery/equipment. Inventories were up 0.6%. In real terms, sales fell 0.7%, putting wholesale volumes on track to contract at the fastest pace since 2009Q1.

The 2015 federal budget outlined personal income tax relief as well as targeted initiatives worth $14 billion through 2019- 20, including support for manufacturers, small businesses, infrastructure, and skills development, in addition to increased contribution limits for TFSAs and a slower pace of mandatory RRIF withdrawals. On a cash basis, fiscal stimulus of $10 billion this fiscal year amounts to 0.5% of GDP. Despite the new stimulus measures and the oil-related hit to revenues, the federal government still managed to present a small surplus for the current year, i.e. 2015-2016, for the first time in seven years.

A smaller contingency set-aside implies a little less padding than in prior years, although expected balanced budget legislation is set to prohibit deficits in all but the most exceptional cases. An already low debt-to-GDP ratio is trending lower, with the government’s target of 25% now in sight. Net financial requirements are relatively contained in coming years. For 2015-16, $90 billion of gross bond supply would see the stock of debt increase a bit faster than the last couple of years, but a falling T-bill stock blunts refinancing/rollover risk.

United States – The durables goods report showed new orders jumping a consensus topping 4% in March, after a 1.4% decrease in the prior month. That’s the largest monthly increase in orders since July last year. Transportation orders soared 13.5% due to gains for both autos/parts (+5.4%) and civilian aircrafts (+30.6%). Excluding transportation, orders fell 0.2%, disappointing consensus which was looking for a small increase, after a downwardly revised print of -1.3% in the prior month (initially reported as -0.4%). Total shipments of durable goods rose 1.1%, but those of non-defense capital goods exaircraft, a proxy for business investment spending, were down 0.4%. Both orders and shipments of non-defense capital goods ex-aircraft contracted in Q1. That suggests business investment spending was soft in the first quarter.

Existing home sales jumped 6.1% to 5.19 million units in March, the highest since September 2013. There were gains for both single family units (+5.5%) and multis (+11.1%). The months supply of homes at current sales rate fell slightly to 4.6. The median resale price rose to $212,100 and is now 7.8% higher than year-ago levels. About 24% of March sales were made to cash buyers (the lowest share in months), while the share of distressed sales in total sales fell to 10%, a four- month low. The uptick in sales perhaps reflect better job opportunities, and a new program launched by the federal government last December which allows for a smaller down payment for first time home buyers.

New home sales fell to a four-month low of 481K in March, erasing much of the prior month’s gains. The months supply of homes at current sales rate jumped to 5.3, the highest since last November. The median sale price fell to $277,400, down 1.7% below year-ago levels. The drop in new home sales in disappointing, but a rebound can be expected considering the sharp increase in the NAHB builder confidence to a threemonth high in April.

Markit’s flash/preliminary estimate of the manufacturing purchasing managers index ended up at 54.2 in April, down from 55.7 in the prior month. A reading above 50 implies expansion in manufacturing activity. Production expanded further, but the pace of growth was the slowest in four months. New export orders fell for the first time since last November, with survey respondents noting “subdued demand from clients across Europe, in part reflecting the stronger US dollar exchange rate.” Input prices fell again in the month.

Weekly jobless claims data for the week of April 18th showed initial claims remaining roughly unchanged at 295K. The more reliable 4-week moving average rose slightly to 285K. Continuing claims for the prior week jumped 50K to 2.32 million.

World – Flash manufacturing purchasing managers indices for the month of April were released by Markit for a range of countries. In China, the PMI fell to a 12-month low of 49.2 (from 49.6 in the prior month) as new orders fell at a faster rate. Output, however, continues to increase, albeit at a slower pace than in the prior month. Japan’s PMI fell to 49.7 (from 50.3 in the prior month) as both output and new orders fell. Employment, however, returned to growth with an above- 50 print. The eurozone’s PMI fell to 51.9 (from 52.2 in the prior month). More importantly, all of the major sub-indices remained in expansion territory, i.e. output, new orders and employment, the latter increasing at the fastest pace since August 2011.

The eurozone’s services PMI fell to 53.7 in April (from 54.2 in the prior month). In Japan, trade data showed exports surging 8.5% on a year-on-year basis in March. The visible trade balance in Q1 was the best since the third quarter of 2011.