There are now dueling economic growth forecasts by regional Fed banks. The Atlanta Fed’s GDPNow model forecast for Q1 GDP growth is 0.3 percent and the Federal Reserve Bank of New York’s recently unveiled Nowcast model anticipates that GDP will expand by 0.8 percent. Forgive us if we are not that interested in the half of a percentage point differential, because either way, we are talking about snail’s pace, sub-one percent growth.
In the seven years since the end of the recession (the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) said the recession ended in June 2009), the expansion has been sluggish, averaging between 1.5 and 2.5 percent. While so-so growth is typical of recoveries that follow cataclysmic, near-death experiences like the financial crisis and the 18-month Great Recession, the reality is that progress has felt like one step forward, one step back.
It appears that Q1 will be one of the “one step back” periods--we will see when the government releases its first estimate of growth for January-March this week. The good news is that the report is already history and the current quarter could see a step forward. Analysts at Capital Economics “anticipate a rebound in the second-quarter and expect annual GDP growth will be slightly above 2 percent for 2016 as a whole, which would be broadly in line with the trend during this recovery.”
Although economic conditions are looking up, the data have not be strong enough to encourage the Fed to raise interest rates at its upcoming policy meeting this week. The central bankers will likely tell us about the improvement in financial conditions, stabilization of oil prices and diminishing fears over China’s economic outlook and its ripple effects on emerging market currencies, but none of that will prompt action. The big question, according to Capital Economics, “is whether the improvement in financial conditions and the slightly better global outlook persuades the FOMC to drop the language in the statement that ‘global economic and financial developments continue to pose risks’?” If the Fed opts to change its language, it could be preparing markets for a June increase, something investors are not yet anticipating.
MARKETS: Although earnings have fallen over the past year, results have not been as bad as feared and large stocks have been able to edge up. Both the Dow and S&P 500 are 2 percent or less below their 52-week intra-day highs.
- DJIA: 18,003 up 0.5% on week, up 3.3% YTD
- S&P 500: 2091 up 0.6% on week, up 2.3% YTD
- NASDAQ: 4906 down 0.7% on week, down 2% YTD
- Russell 2000: 1146, up 1.4% on week, up 1% YTD
- 10-Year Treasury yield: 1.9% (from 1.75% a week ago)
- June Crude: $43.73, up 4.8% on week (up 67% from Feb lows)
- June Gold: $1,230, down 0.4% on week
- AAA Nat'l avg. for gallon of reg. gas: $2.13 (from $2.11 wk ago, $2.49 a year ago)
THE WEEK AHEAD:
10:00 New Home Sales
3M, Apple, Chipotle, Twitter
FOMC Policy Meeting Begins
8:30 Durable Goods Orders
9:00 S&P Case Shiller Home Price Index
10:00 Consumer Confidence
10:0O Pending Home Sales Index
2:00 pm FOMC Meeting Announcement
LinkedIn, Amazon, UPS, Ford, MasterCard, Conoco Phillips
8:30 Q1 GDP – 1st estimate
Chevron, Exxon Mobil
8:30 Personal Income and Spending
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Consumer Sentiment