Cross currents in US Data: The virtues of patience

A series of US statistics failed to move currency markets and with the exception of the Japanese Yen, the largest movers, the sterling and the Canadian Dollar traded on internal dynamics, while the others finished the week within points of where they commenced.

The euro began the week at 1.1337 and closed at 1.1365. The Australian Dollar started at 0.7125 and ended at 0.7075 and the New Zealand Dollar opened at 0.6849 and closed at 0.6796.  

The Canadian Dollar lost ground on the political troubles of Prime Minister Justin Trudeau commencing at 1.3133 and finishing at 1.3295. The sterling also had a good week on Prime Minister May’s acceptance of a possible extension on the UK exit date of March 29^th.  The pound opened at 1.3069 and closed at 1.3207, though in the initial rush higher it had traded to 1.3350 its highest since last July.

The Japanese Yen began on Sunday in Asia at 110.66 and closed in New York on Friday at 111.97 as the lure of safety in Japan softened as the US China trade dispute became ever more promising of a solution.

The US statistical week began with housing starts on Tuesday. The construction of new homes, has been falling for a year after reaching a post-recession high of 1.334 million annualized in January 2018.  The 11.2% decline in December to 1.078 million, 1.250 million had been forecast, brings starts back to the level of September 2016.  

Reuters

The intriguing factor in the home construction industry is that despite the 19% decline in housing starts last year the number of building permits, a gauge of future construction, climbed to 1.326 million annualized in December, bringing them back to near the top of the post-crash recovery.  With new home construction well below level that might be expected from the increase in population builders seem to be preparing for a recovery in demand.

Consumer confidence figures were a draw. The Consumer Confidence Index from the business group the Conference Board rebounded smartly to 131.4 in February after falling to 121.7 in the government shutdown month of January.   This index remains close to its post-crash high and among the highest reading in the 52 year history of this series.

The confidence index from the University of Michigan also recovered from its shutdown coincident drop to 91.2 in January. At 93.8 in February the return was less than that of the Conference Board statistic and weaker than the 95.7 forecast. However like its older twin it is still strongly positive.   

Reuters

Consumer confidence remains one of the assets of the United States economy.

Initial jobless claims for the week ending February 18^th came in a 225,000, slightly more than the 220,000 estimate. The 4-week moving average has climbed from 206,000 in mid-September but at 229,000 it is still one of the lowest in the 50 year history of the series.

Reuters

The most important number of the week, fourth quarter annualized GDP was, at 2.6%, substantially better than the 2.3% consensus estimate. This gives a four quarter average of 3.1% the best since 2004. 

Normally the Bureau of Economic Analysis (BEA) produces three quarterly estimates. Due to the government shutdown the BEA combined the first two estimates. The third and final figure will be released on March 28^th.

Personal income for December and January from the BEA was a wash. Income rose 1.0% in December, more than double the 0.4% forecast and November was revised to 0.3% from 0.2%. But January’s expected 0.3% increase failed to materialize, income fell 0.1%.

Personal spending for December fell 0.5% against the prediction for a 0.3% gain, though November was adjusted to 0.6% from 0.4%.  The January figure was not released delayed due to the tardy collection of the retail sales figures by the Census Bureau.

As the personal spending numbers depend on these sales statistics, the December spending figure, as with the retail sales figures themselves, are possibly inaccurate. They decline in retail sales and spending in December contradict all private sector reports of a robust holiday seasons.

Finally the manufacturing purchasing managers’ index for February from the Institute for Supply Management missed expectations at 54.2, 55.5 had been predicted. This is the lowest reading in two years and reversed the January bounce to 56.6 from 54.3 in December.  The new orders index also reneged on its January bounce to 58.2, falling to 55.5. December’s 10.5 point drop to 51.3 had been the steepest since the recession.

While the American consumer appears resilient, with confident attitudes in the upper historical range for the series, business sentiment has waned from its euphoria of last year though it continues to be firmly in expansion territory.

It is too early to tell if the US economy will resume its more than 3% growth of the mid-two quarters last year.  The government shutdown and the still pending China trade talks have put a haze of uncertainty over the economy. 

Currency traders have adopted the patience of the  Federal Reserve.