Key US Data Releases and Events
Concerns about Chinese GDP growth emerge, but a “soft landing” is still the most likely outcome.
China reported this week that economic growth slowed to an 8.1% year-on-year (y/y) pace during the first quarter, from 8.9% in the previous quarter. This was close to the IHS forecast—although below the market consensus—so we hold to the view that China will still achieve a “soft landing.” Nevertheless, the risk of a sharper slowdown has increased with this report. The primary channel linking the US and Chinese economies is our export sector. From that standpoint, slower Chinese growth poses a real, but limited risk to the US economy. US exports to China are tightly linked to its construction and investment boom—agricultural products, chemicals, transportation equipment, and machinery. This leaves certain sectors of the US economy particularly exposed to a China slowdown. Indeed, as US economic growth slowed last year, many US corporations in the industrials and materials sectors nonetheless reported strong earnings performance because of robust Chinese demand. US companies won’t have that leg to stand on this year if China’s growth slows too sharply. In fact, growth in US exports to China has already slowed to 4% y/y as of February. That said, only 7% of US exports go to China. Since exports are 13.8% of US GDP, this means that China absorbs a little less than 1% of our economic output. By way of contrast, Europe receives about 22% of US exports, and Canada about 19%. This fact should limit the fallout to the aggregate US economy even if certain industries are affected. What’s more, the Chinese government is expected to step in with stimulus measures—including bank reserve ratio cuts and a slower appreciation of the renminbi—to reinforce economic activity. While a weaker renminbi would make US exports more expensive, stable demand will be a plus. Finally, slower China growth will have positive commodity-price side-effects that will be helpful to US consumers and further blunt the impact.
In US news this week (April 9–13), consumer price inflation was softer in March than in February due to a smaller increase in energy prices. Core CPI inflation is now tracking at 2.3% y/y. The trade gap narrowed more than expected in February as the Chinese New Year holiday temporarily slashed imports. The labor market was dealt a setback as initial unemployment claims unexpectedly jumped, although some of the surprise was chalked up to public school spring break. Consumer sentiment was dented a bit in early April as higher gas prices strained household budgets. Nevertheless, confidence in future conditions improved, while near-term inflation expectations fell back and long-term inflation expectations stabilized.
This coming week (April 16–20), retail sales will give an early read on the consumer in March. Auto sales slumped last month, but nonauto sales were likely boosted by the warm weather and iPad sales. Impact from higher gasoline prices will be looked for. Industrial production likely grew as better utilities output offset a pause in manufacturing centered on autos. Better pending sales of existing homes point to a small uptick in closings during March. Homebuilders likely boosted single-family housing starts last month, but pulled back on multifamily units.
Monday, April 16 – Retail Sales (Mar)
IHS Global Insight: 0.4%
Last Actual: 1.1% (Feb)
IHS Global Insight: 0.8%
Last Actual: 0.9% (Feb)
What to Look For
- A boost at electronic stores and in weather-sensitive apparel
Overall March retail sales were likely held back by a drop in auto sales last month. Outside of autos, however, the warmer winter weather assisted a variety of retail segments, including clothing stores and building materials stores, which should post healthy gains. Furthermore, the release of Apple’s new iPad and the price discounting of the old iPad (iPad2) in the mid-March should produce sizable gains to brick-and-mortar electronic stores and e-commerce retail sales.
Tuesday, April 17– Housing Starts (Mar)
IHS Global Insight: 0.717 Million
Consensus: 0.705 Million
Last Actual: 0.698 Million (Feb)
IHS Global Insight: 0.688 Million
Consensus: 0.710 Million
Last Actual: 0.715 Million (Feb)
What to Look For
- Improvement in new single-family construction
We are expecting a 2.7% increase in housing starts, with a bounceback in single-family starts in the West and South offsetting a double-digit drop in multifamily starts.
Tuesday, April 17 – Industrial Production (Mar)
IHS Global Insight: 0.2%
Last Actual: 0.0% (Feb)
IHS Global Insight: 78.4
Last Actual: 78.4 (Feb)
What to Look For
- A pause in manufacturing growth
Industrial production likely grew in March, as weak manufacturing was offset by firmer utilities output. Motor vehicle output likely fell about 0.7%, while core manufacturing barely budged, according to weak hours-worked data. The other item to watch is revisions to prior months, which have been consistently positive of late.
Thursday, April 19 – Existing Home Sales (Mar)
IHS Global Insight: 4.62 Million
Consensus: 4.62 Million
Last Actual: 4.59 Million (Feb)
What to Look For
- Small uptick in closings
We expect existing home sales to be up slightly, based on the latest two months of pending home sales data, which point to a small pickup in demand since the start of the year.
by Nigel Gault and Paul Edelstein
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