April CPI and Retail Sales With a Heavy Dose of Fed Speak

We wrote in this space last Monday that after the week is over we should have a good idea if April was able to outshine March as far as economic activity and while expectations were such, the reality failed to live up to the hype. The disappointing jobs report on Friday had many scratching their heads but the ISM Manufacturing and Services indices faded a bit from March as well. They still pointed to expanding sectors but with a bit less momentum than expected. The jobs report is the bigger conundrum.  Was it the supplementary unemployment benefits keeping people on their couches and not in the employment lines? If so, why was the hospitality sector (read restaurants/bars) one of the few posting healthy job gains? Maybe it was seasonal adjustments clouding the picture just as they did back in December and January. In any event, we’ll get a bevy of Fed officials speaking on the economy this week so expect some comments about how they are reading the jobs report. We suspect we’ll hear that they put little weight in a single report, but we await their august analysis. As for this week, we get more April data with CPI on Wednesday and Retail Sales on Friday. CPI is expected to spike as promised by the Fed so we’ll see how investors react while retail sales are expected to ease off the spike in March due to stimulus checks, but still post modest spending gains.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.00% Unchanged
6 Month 0.02% Unchanged
1 Year 0.04% Unchanged
2 Year 0.15% -0.01%
3 Year 0.29% -0.05%
5 Year 0.78% -0.08%
10 Year 1.59% -0.05%
30 Year 2.31% -0.02%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.16%
6 Mo LIBOR 0.19%
12 Mo LIBOR 0.27%
Swap Rates  
3 Year 0.429%
5 Year 0.873%
10 Year 1.572%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
May 11 NFIB Small Business Optimism Apr 101.0 100.8 98.2
May 11 JOLTS Job Openings Mar 7.500m 7.500m 7.367m
May 12 CPI (MoM) Apr 0.2% 0.2% 0.6%
May 12 Core CPI (MoM) Apr 0.3% 0.3% 0.3%
May 12 Core CPI (YoY) Apr 2.3% 2.3% 1.6%
May 14 Retail Sales (MoM) Apr 1.1% 1.0% 9.7%
May 14 Retail Sales Ex Auto & Gas (MoM) Apr 0.7% 0.3% 8.2%
May 14 Industrial Production (MoM) Apr 1.3% 1.0% 1.4%
May 14 U. of Mich. Sentiment May P 90.0 90.1 88.3

Top 5 Events for the Week

May 10— 14, 2021

1. Fed Speak—All Week

With a disappointing jobs report in hand, several Fed official will have plenty of opportunities to express their thoughts this week. A total of  eight officials are set to speak with most of those scheduled to talk about their economic outlook. Alas, Chair Powell is not one of the speakers but Richard Clarida and Lael Brainard will bring their considered judgment and we’ll be listening. We’re bound to hear that one report does not a trend make. Just like Chair Powell said the strong March jobs report did not in itself shift policy, so to are the Fed speakers this week likely to say the April report won’t change policy as well. They are likely to be asked whether the April miss reflects the impact of the supplementary unemployment benefits limiting lower-wage workers from seeking jobs. While there may be some of that going on, the hospitality sector (read restaurant/bar) had some of the strongest job gains in April. And the misses were broad-based and not just in one or two lower-wage categories. It looks more like seasonal adjustment issues clouded the report but we’ll look to the Fed officials for more insight into the April jobs numbers.

 

2. April CPI—Wednesday

The March CPI release was the first to experience the so-called base effect that resulted in higher year-over-year prices. In the April report we should see the same type of behavior with  April 2020 rolling off the YoY calculations.  We agree with the Fed outlook that the expected increase is likely to be transitory, while a more durable increase in prices will come from rising wages and increased demand for consumption.   For April, overall CPI is expected to increase  0.2% versus 0.6% the prior month. The core rate (ex-food and energy) is expected to increase 0.3% matching the increase in March.  CPI (YoY) is expected to spike higher to  3.6% after last month’s 2.6% result. Core CPI (YoY) is expected to increase to 2.3% after a 1.6% rate in March. While the Fed has gone to great lengths to prepare investors for these “transitory” spikes in prices, will they take heed and not force yields higher?

Source: Bloomberg

3. April Retail Sales—Friday

After consumers spent the lion-share of their Stimulus 3.0 checks in March, April retail sales numbers are expected to slow from the spikes in spending we say in March. For the month, retail sales are expected to be increase 1.0% versus 9.7% in March. Sales ex-auto and gas are expected to be up only 0.3% versus a 8.2% jump in March. The retail sales control group—a direct feed into GDP—is expected to post an unchanged reading versus a 6.9% pop in March.

4. May Preliminary University of Michigan Consumer Sentiment—Friday

Two-thirds of the US economy is consumption-based so gauging consumer sentiment is crucial to determining how they feel about spending, especially as virus cases trend lower and vaccination rates climb. For May, unsurprisingly the Bloomberg consensus is for sentiment to improve to 90.1 versus April’s  88.3 reading.  The sentiment index peaked at 101 just over a year ago and bottomed at 68.0 in April. Thus, sentiment is expected to reflect the improved virus and economic outlook and that bodes well for spending in May and succeeding months.

5. Job Opening and Labor Turnover Survey—Tuesday

The JOLTS Job Openings Survey provides some additional details that are not in the more famous BLS Employment Report and even though the report is a month behind the information will be of interest to policy makers and investors alike. Expectations are for 7.5 million job openings versus 7.4 million in the prior month. Job openings peaked at 7.5 million in November 2018 so we’ll be right at that level again if expectations come to pass. The Quits Rate will be checked as well as it measures the confidence level of workers who voluntarily leave a job in search of a better one. The rate rose to 2.3% of all workers in January which equals the rate a year ago. It dipped as low as 1.4% in April 2020, so it seems worker confidence has returned to the level it was pre-pandemic.

 


 

Yield Universe

 

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Published: 05/09/21 Author: Thomas R. Fitzgerald