● US mortgage applications have seen a fifth consecutive decline | Consumer Affairs
● In May, US Redbook Retail Sales Index rose 1.8% month-to-date compared to the previous year | MNI
● ECB’s Nowotny states there is ‘No Flexibility’ on rules to support Greece | MNI
● China’s factory PMI indicates lackluster performance in May despite stimulus measures | Reuters
● UK foreign minister warns that the country will exit the EU unless reforms are implemented | Guardian
● Russia is amassing heavy military equipment along the Ukrainian border | Reuters
How is the second-quarter economic recovery in the US shaping up? While signs indicate a modest improvement, the overall situation remains somewhat tenuous. Recent sentiment indicators from May offer hope that the US economy is avoiding a recession, even as growth continues to be sluggish. In comparing the early data from this month with April’s figures, there is a noticeable, albeit slight, positive shift.
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● New home sales in the US have increased by 6% in April following a March decline | NY Times
● US home prices have risen faster than anticipated in March | USA Today
● Business activity in the US service sector expanded at a slower rate in May | Markit
● The Conference Board reports an increase in the US Consumer Confidence Index for May | CB
● German consumer sentiment is projected to rise in June, according to GfK | MarketWatch
● UK retailers are experiencing strong sales growth in June: CBI | RTT
Forecasts indicate that the US economy is set to grow at a quicker pace in the second quarter compared to Q1. However, there is a risk that this growth may not be substantial. The benchmark for improvement is relatively low, given the near-stagnant performance in the first quarter of the year compared to Q4 2014. As we approach the release of Q2 data on July 30, it’s apparent that there are diverse opinions on the outlook for this quarter.
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● US inflation is moving closer to the Federal Reserve’s target after core prices increase | Bloomberg
● Janet Yellen states that the Fed is on track for its first rate hike this year | USA Today
● Germany sees a decline in growth and consumer confidence | WSJ
● Capital Economics anticipates a pick-up in global growth during Q2 | RTT
● With funds dwindling, Greece is nearing bankruptcy | NY Times
● Is a parallel currency a viable option for Greece? Part I | VoxEU
As Memorial Day weekend approaches, marking the unofficial start of summer, your editor will take a brief hiatus from blogging. Regular postings will resume on Tuesday, May 26. In the meantime, let’s make the most of this time. As noted by Bill, “summer’s lease hath all too short a date.”
How is the second-quarter recovery holding up? The situation remains uncertain. While forthcoming economic reports may provide clarity, the data released so far for May presents a mixed picture for the US economy.
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● US Manufacturing PMI has dropped to a 16-month low in May | Markit
● US existing home sales have fallen short of expectations in April | Mortgage News Daily
● Although US jobless claims have risen, they still indicate a growing labor market | WSJ
● The US Leading Economic Index has increased by 0.7% in April, exceeding expectations | RTT
● The national activity index has shown a less negative result for April, according to the Chicago Fed | MarketWatch
● Consumer expectations for the US economy have dropped significantly, marking the largest decline since 2013 | Bloomberg
● German business confidence has weakened in May | RTT
The Chicago Fed National Activity Index’s three-month average (CFNAI-MA3) rose slightly in April, but growth remained beneath the historical trend for the third consecutive month. This latest series of three consecutive negative values marks the longest stretch of below-trend data in nearly two years. However, CFNAI-MA3 did rise to -0.23 last month, still above the -0.70 threshold that indicates the beginning of new recessions. Nevertheless, growth remains weak relative to recent benchmarks, prompting ongoing discussions about the economic forecast.
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Tobin’s Q, a measure of market valuation, has resurfaced in discussions, particularly following a popular Bloomberg article. This piece, released earlier, bore the provocative title: “Nobel Winner’s Math Shows S&P 500 Unhinged From Reality.” The assertion appears serious but warrants skepticism. As various analysts have noted (refer to here, here, and here for instance), there is a tenuous relationship between real-world investment strategies and Tobin’s Q. Yet, this topic continues to ignite sensational headlines.
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