Last night, I faced a deep personal responsibility: my cherished mother, Eva Picerno, has passed away at the age of 94. Although her decline had been gradual, her end came gently, in her bed, engrossed in her favorite program—Dancing With The Stars. While her departure was not entirely unexpected, it is profoundly heart-wrenching. Her indomitable New England spirit remained vibrant until the very last moment. This farewell occurs almost three years after my father, Joseph, also departed this world. I feel their absence keenly. As their only child, I was fortunate to receive their all-consuming love, which is now a bittersweet memory. In light of this new loss, I intend to step away from discussions on macroeconomics and market analyses for a time. Shortly after Memorial Day, I expect to return to the usual discourse here. For now, however, in memory of my mother, The Capital Spectator will take a pause as I shift from the role of an analytical commentator to a grieving son, grappling with the task of saying farewell one last time.
In April, economic momentum showed a broadly positive outlook. Although it might not feel like growth to everyone, recent data strongly indicates a trend towards expansion. The revision of 14 diverse economic and financial metrics from last month reveals minimal signs of strain in the ongoing assessment of business cycle risks.
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● Think Like a Freak: The Authors of Freakonomics Offer to Retrain Your Brain
By Steven D. Levitt and Stephen J. Dubner
Summary via publisher, HarperCollins
Levitt and Dubner present a framework for innovative problem-solving applicable to everything from minor life hacks to significant global changes. They cover a wide array of subjects—from business tactics to charitable efforts and sports controversies to political matters—aiming to reshape how you think. Expect to uncover fascinating tales, including the secrets behind a Japanese hot-dog-eating champion, the bizarre case of an Australian doctor ingesting harmful bacteria, and the motivations behind Nigerian email scams proclaiming their origin.
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According to the US Census Bureau, residential construction saw an uptick last month. Housing starts surpassed expectations, rising to an annualized rate of 1.072 million units on a seasonally adjusted basis—the highest level since last November. Additionally, 1.080 million permits were issued in May (annualized), marking the greatest number since the recession ended in mid-2009. This monthly increase significantly enhanced the year-over-year comparison, with starts showing an increase of more than 26% compared to a year earlier—the strongest annual growth since November. However, permits exhibited a slight decline in the annual comparison, showing only a modest 3.9% rise.
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Housing starts are anticipated to total 946,000 in tomorrow’s April update, based on The Capital Spectator’s median econometric forecast (seasonally adjusted annual rate). This figure reflects no change from the previously reported March number of 946,000.
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Recent reports on jobless claims and industrial production present a mixed perspective on the macroeconomic outlook. On one hand, the significant decline in new unemployment benefit filings to a seven-year low provides a strong indication of continued labor market growth in the near future. On the other hand, the unexpected drop in industrial output last month dampens any celebratory mood regarding the lower rate of layoffs. Nonetheless, it would be premature to overreact to the monthly industrial production setback, as the year-over-year trend remains positive.
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While economic growth faltered during the first three months of this year, a rebound is anticipated for the second quarter. According to The Capital Spectator’s median econometric nowcast, GDP is expected to climb by 2.8% during the April to June period (real, seasonally adjusted annual rate). This initial estimate utilizes limited data for Q2, making it a preliminary assessment that will undergo several updates as new economic indicators become available and existing data is revised. The final nowcast for the quarter will be issued shortly before the official GDP report for Q2:2014, which the US Bureau of Economic Analysis (BEA) plans to release on July 30, 2014.
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In April, US industrial production is projected to rise by 0.3% compared to the previous month, based on data from The Capital Spectator’s median econometric forecast. This anticipated increase indicates a slow-down from the previously reported 0.7% growth for March.
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Retail sales experienced a modest increase in April, rising only 0.1% compared to the previous month, as reported by the US Census Bureau. When excluding gasoline sales, retail spending remained stagnant. This stands in stark contrast to the previous month’s report, which indicated a remarkable 1% surge in spending. However, it would be prudent to consider this latest update as mere noise, given that the year-over-year increase through last month (+4.0%) was only slightly below March’s rate (4.1%), suggesting that retail activity is still on a strong upward trajectory.
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This month’s outlook for long-run risk premiums (the return above the “risk-free” rate) remains largely consistent with previous estimates. For example, the Global Market Index (GMI)—a market-value weighted mix of all the major asset classes—is currently anticipated to yield an annualized risk premium of 4.1%, based on analysis of data through April 2014. This forecast aligns with last month’s prediction.
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