Friday, May 30, 2014

Lower markets on a decline in US consumer spending

Dow dropped 15, decliners over advancers 5-4 & NAZ was off 4.  The MLP index slid a fraction to 491 (remaining near its record 493) & the REIT index went up 1+ to 301.  Junk bond funds inched higher & Treasuries rose again.  Oil is headed for the first weekly loss in 4 weeks as rising inventories signaled ample US supplies & gold continues falling, near its 4 year lows..

AMJ (Alerian MLP Index tracking fund)

CLN14.NYM....Crude Oil Jul 14...102.86 Down ...0.72  (0.7%)

GCM14.CMX...Gold Jun 14.......1,250.70 Down ...5.60  (0.5%)

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Consumer spending unexpectedly fell in Apr after the biggest surge in almost 5 years as incomes slowed, a sign the largest part of the US economy will take time to accelerate.  Household purchases, which account for about 70% of the economy, dropped 0.1%, the first decrease in a year, after a revised 1% gain the prior month (the strongest reading since Aug 2009), according to the Commerce Dept.  The forecast called for a 0.2% rise.  Incomes advanced 0.3% after climbing 0.5%.  Today’s report underscores the need for faster progress in the job market to spur wage gains & provide more households with the means to spend.  At the same time, Mar & Apr figures together paint a picture of steady demand, signaling purchases will contribute to the economy’s rebound in Q2.  Adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases fell 0.3% in Apr, the most since Sep 2009.  Disposable income, or the money left over after taxes, rose 0.2% after adjusting for inflation, the smallest gain this year.  It climbed 0.3% in the prior 3 months.  The savings rate increased to 4% from 3.6%.  Wages & salaries climbed 0.2%, the smallest gain this year, after 0.6% advance in Mar.  Spending on durable goods, including automobiles, decreased 0.5% adjusted for inflation, following a 3.7% surge.  Purchases of non-durable goods, which include gasoline, fell 0.3%.

Consumer Spending in U.S. Unexpectedly Declines

Li Keqiang
Photo:   Bloomberg

China will cut the reserve requirement ratio for some of the nation’s banks in its latest step to support growth.  Policy makers will “appropriately” cut the reserve requirement for banks that have extended a certain amount of loans to rural borrowers & smaller companies, the cabinet said today after a regular meeting led by Premier Li Keqiang.  The State Council also pledged to further fine-tune policy when needed, while reiterating it will maintain a prudent monetary stance.  The economy is forecasted to expand 7.3% this year, which would be the weakest pace since 1990,.  Premier Li last week called on regional authorities to help stabilize expansion as he seeks to ensure that the gov meets its goal of about 7.5% growth for 2014.  The State Council also said in today’s statement that the nation will reduce social financing costs & keep reasonable growth in credit & social financing as it faces “relatively large” downward economic pressure.  The central bank cut reserve requirements for some rural banks in Apr & this month called on the biggest lenders to accelerate the granting of home mortgages.  The State Council has also outlined steps including faster railway spending & tax breaks to help the gov meet its growth goal.

Business activity in the Chicago area unexpectedly increased to a 7-month high in May as orders accelerated, a sign manufacturing will help provide a boost to the economy.  The Institute for Supply Management-Chicago business barometer rose to 65.5 this month from 63 in Apr.  The forecast was that the index would fall to 61 & readings greater than 50 signal growth.  Gains in manufacturing, which makes up about 12% of the economy, have been supported by rising demand for durable goods such as automobiles, appliances & machinery.  Faster improvement in the labor market will be needed to generate more wage growth & boost consumer purchases, which will in turn create more orders for factories.  While orders climbed, production & factory employment expanded at slower paces this month.  The national factory index to be released on Mon, from the Institute for Supply Management, probably increased to 55.5 in May from 54.9 the prior month, according to a recent estimate.

Chicago Manufacturing Index Rose to Seven-Month High in May

The news on consumer spending has to be rated as glum.  This is the biggest part of the economy & is not giving encouraging data.  While retailers were hurt by bad weather early in the year, Apr should have shown recovery.  In the meantime, Chinese leaders are trying to do something to fix their economy, but growth cannot be re-accelerated to the higher rates in recent years.  Even with this news, stocks are merely pausing today.  Maybe traders have already begin their weekend holidays.

Dow Jones Industrials

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