Input Costs Rise. Our latest batch of economic data has provided further confirmation that our economic expansion is accelerating modestly.
We closed out the month of May on Tuesday with a monthly gain for the broader market despite a Q1 earnings season that left much to be desired. Thus far, Q2 economic data has spoken to firming in the economic expansion and to both modest growth and telltale signs of inflation. On top of the economic data we received and reviewed last week, this week thus far we have seen more of the same.
Personal Income M/M came in at 0.4% for April; not exactly dramatic growth but certainly a positive sign and within consensus. Consumer Spending rose a robust 1.0% versus expectations calling for 0.7%. The core PCE price index was 1.6% for the month of April while the PCE Price Index was hotter than consensus, 1.1% versus 0.8%.
The S&P Case-Shiller HPI rose again in March by 0.9% versus expectations of 0.7%. The year-over-year rise in the index was 5.4%. Again higher than expectations. Continuous gains in employment, incremental gains in wages and a shortage of housing are all contributing to the gains in home prices.
In an unexpected and off script reading, the Conference Board’s Consumer Confidence figures for May slipped to 92.6 from the previous month’s 94.6.
Motor Vehicle sales remained robust though flat for the month of May coming in at 17.5 M annualized. PMI Manufacturing for the month was 50.7 versus last month’s 50.8. The ISM Mfg. Index rose to 51.3 from April’s 50.8. Twelve of the 18 industries included in the reading reflected gains. Hints of inflationary pressures in the ISM report can be rooted back to input prices. This year’s rebound in crude oil pricing and the increased cost of basic materials was reflected in the input price component of the ISM by rising to 63.5 – the highest level since June 2011.
Today we receive the ADP Employment Report and Jobless Claims. Tomorrow we receive the Employment Report for May (consensus + 158K, 4.9%), International Trade, Factory Orders and ISM Non-Mfg. Investors don’t like surprises and none are expected for the remainder of the week.
A hike is coming. We have seen European shares climb, dollar firms Reuters on Fed hike expectations Accelerating manufacturing, home price appreciation and sales gains, plus low levels of unemployment provide the context. Smart money is calling for that hike to materialize in July – after the Brexit referendum. The data is simply not robust enough to warrant a move anytime sooner yet is strong enough to provide certainty that if current trends remain constructive for the economy through the summer, the Fed will likely need to raise twice more this year.