 In the U.S.A. seven percent of Americans think chocolate milk comes from brown cows. Yep, according to a survey from the U.S. Dairy Innovation Center, 16.4 million, misinformed, milk-drinking people, the equivalent of the population of Pennsylvania, just don't accept the inclusion of cocoa and sugar in their basic health drink! Should we be shocked? Not really!
In the U.K. five out of eight members of the Bank of England Monetary Policy Committee think interest rates should be at 0.25%, even though inflation (RPI) hit 3.7% in May. Just three members of the MPC voted to hike rates this week, despite the fact RPI inflation hit 3.7% and the RPIX measure excluding housing costs hit 3.9%. In the U.S inflation slipped back to 1.9% in May from 2.2% in April. The Fed hiked rates despite the fall. More U.S. rate rises are expected this year, with bond sales expected as the QE experiment ends. The Fed intends to increase rates, even though inflation is likely to be around or even below the long term 2% target. In the U.K. headline CPI inflation hit 2.9%. Goods inflation increased to 2.9% from 2.5% last month. Inflation is spiking much earlier than the Bank expected. Manufacturing prices steadied in the month at 3.6%. Evidence of price pressures receding were inherent in the input cost fall from 20% at the start of the year, to 12% in May. "I see just blips" the likely verdict from the Governor, as the decline in Sterling and the fall in oil prices works out of the inflation rate. So what happened in the economy this week ... In the U.S despite the fall in inflation, the Fed is focusing on the strength of the jobs market and the steady growth in the economy. Most analysts expect the US to grow by just over 2% this year as employment continues to rise and wage growth is muted. In the UK, unemployment fell to just over 1.5 million at a rate of 4.6%. The levels are lower than before the great recession. Vacancies fell slightly but may be subject to upward revision. The economy is near full employment with base rates on the floor. The Bank is reliant on the weakness of earnings to justify the accommodating policy stance on rates. Earnings growth slowed to 2.1% in April from 2.3% at the end of March. Construction earnings apparently fell in the month, having risen by over 6% in the final quarter of last year. There is something amiss in the data set. Chocolate milk from brown cows seems more plausible, than the latest batch of earnings data from the O.N.S. For lovers of gloom, retail sales (volume) growth slumped to just 0.9% in May. Household goods stores were hit by a 6% fall in sales. Real earnings are under pressure. The income impact of slowing earnings and rising inflation was a fall of 0.6% in real incomes in April. It won't be much better in May. The good news, retail sales spending increased by 4% in the month, as money still left household pockets. Online sales increased by 15%. The outlook for the rest of the year is uncertain given the political turmoil and the start of the Brexit negotiations next week. The week in markets ... The Dow rallied, the FTSE fell. The Dollar softened against the Euro and Sterling despite the hike in rates. Amazon made the move on Whole Foods for $14 billion dollars. Supermarket shares took a hit. The Empires of the Cloud don't take prisoners ... John That's all for this week. Our Economic Forecasts for June have now been updated. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.
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 It may have seemed a good idea, walking in Snowdonia with a spring in your step and a twenty point lead in the polls. A snap election would provide a clear mandate for the difficult Brexit negotiations ahead. The Prime Minister made the call. It was not to be.
Theresa May lead a disastrous campaign with a manifesto offering "Sky Blue Thinking With A Hint Of Rosé". A highly personalised campaign offered more austerity with a hint of tax rises and the prospect of balancing the budget by 2025! A dementia tax, an attack on school lunches, more cuts in police services offset by a free vote on fox hunting! How the young people would follow that particular drag hunt. Businesses were concerned by the intervention on board room pay and governance. And what of the the immigration tax on foreign workers? This to follow the payroll tax disguised as the apprenticeship levy. May's addiction to UKIP extinction ignored the attack on the higher education sector. The inclusion of student numbers in the immigration stats meant the Tories were planning cuts in overseas revenues for universities around the UK. The poll proposition was myopic and misguided. Voters on a Left Right Axis were offered the chance to vote for the singularity of Brexit. Labour offered clear socialist direction, closeting the leader for the main part of the campaign. In the end, Corbyn enjoyed a magnificent defeat. Held back from a march on the Palace demanding the right to form a government as the biggest loser, here was a man who looked to be enjoying the rôle of leader for the first time ever. So what happens next? A hung parliament, a minority Tory government supported by the DUP and a Prime Minister mortally wounded limping on for a few months at best. The time is right for Boris to take centre stage perhaps. If only he would tweet more in Latin and Greek, featuring on Facebook and SnapChat to speak to the young people ... So what happened in the economy this week ... Manufacturing slumped in April according to the latest ONS data. The year on year rise was zero, following growth of over 2.5% in the first quarter. It was a statistical quirk in part. April 2016 was a particular high month. For the year as a whole we expect growth of 1.4% compared to growth of 0.8% last year. Car sales in May fell by 8.5% according to the latest SMMT data. It is a concerning development at first sight. The slump largely explained by a drop in diesel car sales of 20%, Mike Hawes of the SMMT suggests the budget and the pull forward of sales into the March data may still be impacting on forecourts. We expect car registrations to remain at prior year levels for the rest of the year, with no real growth in prospect. For the year as a whole we expect new car registrations to be around 2.7 million marginally ahead of 2016. Halifax added to the housing gloom this week. House prices in May increased by just 3.3%. The data follows the Nationwide release last week. Affordability is impacting rather than a slump in sentiment and appetite for home ownership. We published our housing review last week. The Halifax data largely anticipated. The service sector disappointed slightly in the latest Markit data, "Service Sector Slows in May" the headline. The headline index slowed to 53.8 from 55.8 in April. New business appeared to be the challenge as uncertainty over the election impacted. No real cause for alarm perhaps. Underlying growth remains strong and consistent with growth in the economy of around 2%. Consensus forecasts suggests the economy will grow by just 1.7% this year and by 1.4% in 2018. In our latest update, we expect growth of just over 2% over the period. The election result creates a clear challenge to business and consumer confidence. The prospect of a hung parliament, leadership change and a further election before the end of the year won't really help ... The week in markets ... Markets were hit by the Comey testimony in the US and the election result in the UK. Sterling took a hit against the Dollar and the Euro. The FTSE and the DOW were unsettled but rallied at close of week. Profit taking in US tech stocks hit Facebook, Apple and Amazon at close. John That's all for this week. Our Economics Forecasts for June will be released following a few tweaks post election ... © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  Consumer Confidence rallied in May. The GfK Consumer Confidence Survey jumped 2 points in the month. Households were more confident about their personal financial situation over the next twelve months. Spending plans were lifted despite some uncertainty about the economy in the year ahead.
Joe Staton, Head of Market Dynamics at GfK, said: “We have an unexpected uptick in the barometer this month as consumers report increased confidence in their personal financial situation, the wider economy, and future plans for shopping and saving. Despite life becoming more expensive and wages dropping in real terms for the first time in three years, stagnant living standards haven’t yet significantly dented consumers’ spirits." The PMI Markit surveys for Manufacturing and Construction were released this week. Manufacturing activity demonstrated further growth this month. The headline index moved to 56.7 slightly down from the April high, strong demand in the UK and export markets provided the foundation. Construction activity bounced back to a seventeenth month high. Housing outperformed. The headline construction index jumped to 56.0 from 53.1 prior month. Most economists expect activity to slow this year as inflation increases and incomes remain static. Some belong to the "Vera Lynn School of economic thought". "Recession again, don't know where, don't know when ...". Most aren't even sure why! Consumer confidence so far into the year remains strong, despite uncertainty about the election and Brexit. Output in manufacturing and construction remains high. The data on the service sector is due to be released next week. We expect a similar strong performance. Housing Market ... no slump in prospect ... Mortgage activity eased slightly in April according to the latest Bank of England data. Is this the prelude to a slump? Not really! Analysis suggests it's business as usual in a market adjusting to affordability. Prices have risen rapidly over the past three years. Sooner or later, market reality will impact on levels of activity and prices. Mortgage approvals fell by 2.3% compared to April prior year. For the year, as a whole we expect the volume of activity to slow from 800,000 last year to just 785,000 this year. Prices slowed according to the Nationwide House Price Index. Prices increased by just 2.1% in the month compared to increases of 14% just three years ago. A glance at the Nationwide affordability explains why. The price to earnings ratio remains steady at 6.0. It peaked at 6.5 in 2007. The long run average is more like 4.5. House prices are high compared to current earnings. No slump in prospect. The market is adjusting to the reality of affordability. Housing starts and completions are set to hit 200,000 this year. The government target of 250,000 units will remain elusive. Completions in 2016 were just 179,000. The market performance this year represents an increase of 12%. Housing starts last year were 195,000. Private sector housing construction is set to increase by 5% this year from £27.2 billion in 2016 to £28.5 billion. Public sector housing is set to increase by 4.5% to a level of £4.5 billion. No slump in prospect. We still expect the economy to grow by between 2.0% and 2.4% this year. The week in markets ... Markets were confused this week. The Dow closed up as the FTSE ended unchanged. Sterling held against the Dollar, both slipped against the Euro. Oil fell and Gold rallied. Amazon closed above $1,000 dollars, Google looks set to follow, Alphabet closed at $996.12. US job growth slowed to 138,000 in May as the unemployment rate fell to 4.3%. The Fed is set to make the move to hike rates this month. The market is now more unsure about two further increases this year. John That's all for this week. Our Economics Forecasts for May will be released at the end of next week. This follows the second estimate of GDP last week. Slight delay but ... © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  The economy grew by 2% in the first quarter of the year compared to 1.8% in 2016. Household expenditure was up by 2.6%, investment spending increased by 2.2%. Government spending was up by just 0.8% as the austerity policy continues. Domestic Demand overall was up by 2.3% compared to 1.5% last year.
Is this a sign of an economy radically slowing? Not really. The consumer is not yet demonstrating any real income squeeze. The overall performance of the economy is impacted by government austerity and poor trade figures. The external deficit will create a serious challenge to a lax monetary policy eventually. Sterling moved down this week to $1.28 as the Tory lead fell to just 5%. The trade balance deteriorated. Imports increased by 4.3% and exports increased by just 2.1%. The deficit increased to almost £12 billion (current values) in the quarter. That's 2.4% of GDP. The chained volume measure is much worse. The deficit increased to £16.5 billion, a heady 3.5% of GDP. In current prices the economy grew by 4.4% to a level of almost £500 billion. Base rates on the floor at 0.25% with strong growth and a widening trade deficit. It just doesn't make sense. Sensing trouble ahead perhaps, foreign workers are heading home. Net migration fell to just 248,000 in the final quarter of the year. EU citizens are leaving. 117,000 departed, a rise of 31,000 compared to the prior year. The government is committed to reducing immigration to "tens of thousands" at a time of full employment in the economy. The damage to industry and the higher education industry in particular will be significant. In other news this week ... Pause for thought at the G7 meetings. The Prime Minister has implemented a U-Turn on welfare policy. The strong and stable Prime Minister has proved to be unstable under fire. The about turn on the budget and now the manifesto have clearly placed the Tory campaign under pressure. The lead in the polls has slumped to just five per cent. Whitehall is mugging up on the Labour manifesto just in case. Could there be another vote shock following Brexit and Trump? Jeremy Corbyn in Number Ten? What then for Sterling and migration? The April borrowing figures were released this week. The good news, borrowing fell to £48.7 billion in the financial year 2016/17 slightly better than first estimated. Not so good, Public sector net borrowing (excluding public sector banks) increased by £1.2 billion to £10.4 billion in April 2017, compared with April 2016; this is the highest April borrowing since 2014. Public sector net debt (excluding public sector banks) was £1,722.4 billion at the end of April 2017, equivalent to 86.0% of gross domestic product (GDP). The OBR is forecasting a deficit of £58 billion this year. No real shock in the April numbers. In the US, growth in the first quarter was up by 2% in the first quarter. Growth of around 2.4% remains possible in 2017. The Fed may act to hike rates next month, one of two rises expected this year. In the UK growth of between 2.0% and 2.4% remains a possibility. As the spread against the Fed widens and the UK deficit deteriorates, the Old Lady may have to act to keep pace the with Janet Yellen. So what happened to Markets? Traders were spooked as the Tory lead closed to just five points. Sterling fell, the dollar rallied and markets hit new highs. The Dow closed up at 21,082 from 20,832. The FTSE closed up at 7,547 from 7,470. Sterling was down against the Dollar to $1.280 from $1.304 and was down against the Euro to €1.144 from €1.1636. The Euro moved down against the Dollar to 1.118 from 1.121. Oil Price Brent Crude closed at $51.96 from $53.60. The average price in May last year was $46.74. UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.01 from 1.10. US Treasury yields held at 2.25 from 2.25. Gold closed at $1,280 from $1,251. John That's all for this week. Our Economics Forecasts for May will be released at the end of next week, following the second estimate of GDP last week. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  Rock bottom rates and more of Mr Carney's "infuriating obfuscations" the viewpoint from Phil Aldrick in the Times today. "Wouldn't it be refreshing if Mark Carney were to drop his guard just once and admit the Bank of England is never going to increase rates on his watch." Well maybe! It would certainly make for a better understanding of policy. This week the ONS delivered more information on strong sales, rising inflation, more people in work and vacancies rising in an economy growing at around 2.4%. The Bank is reluctant to raise rates, fearing the squeeze on incomes would hit spending and damage the recovery. Can the standby stance be maintained? This week inflation CPI basis jumped to 2.7%. Service sector inflation hit 3.0%. Producer output prices moderated slightly to 3.6% and input costs eased to 16.6%. The latest data for March suggests earnings in the three months to March were up by 2.7% in the private sector. Public sector pay restraint confined earnings growth to just 1.0%. Earnings overall were up by 2.4%. Unemployment fell to 1.541 million and the number of vacancies reached a record high at 777,000. The retail sales boom continued with sales values up by 7% in April. Sales volumes jumped back to 4.0% from an average of just 2% in the first quarter. The average spend in the first three months of the year was 4.8%. Online sales jumped by 19% accounting for 16% of all retail sales. There is no slowdown in retail sales growth. The spending boom continues as real rates remain low. Deming would say "In God we trust, everyone else must bring data". The data brought, objective analysis presents a "clear and present danger" to the benign monetary stance under the Mark Carney. In other news this week ... At the beginning of the month, the PMI Markit manufacturing Index increased to a three year high, signalling a solid start to the second quarter in April. This week the CBI Industrial Trends Survey confirmed, the strong trend of growth, continued into May. "Manufacturing order books improved on April, and output growth accelerated in the three months to May", the CBI stated. No wonder Carolyn Fairbairn is smiling. Rain Newton-Smith, CBI Chief Economist, said: “The summer sun has come out early for Britain’s manufacturers. Robust demand at both home and abroad is reflected in strong order books, output is picking up the pace. On the other side of the coin, we have mounting cost pressures and expectations for factory-gate price rises." Strong order books and rising prices the overview. It is time for the "infuriating obfuscation" to end. The Bank should begin the move to normalize rates and soon. The Tory or rather "May Manifesto" was released this week. "Blue sky thinking with a hint of rouge" will not please big business. Intervention in the board room with worker representation and curbs on pay will not curry favor among the ranks of the CBI. Arbitrary immigration caps on numbers will compound recruitment difficulties. The "jobs tax on Johnny Foreigner" is perverse and economically illiterate. May's please all centrist manifesto may win the election. The bigger the landslide, the bigger the bank bench problems will emerge. The play full spat over "winter fuel for the well fed" is just the beginning. The dementia tax will be challenged by the back benchers, if they can remember of course ... So what happened to Markets? The Dow closed at 20,832 from 20,919. The FTSE closed up at 7,470 from 7,386. Sterling up down against the Dollar to $1.304 from $1.289 and was down against the Euro to €1.163 from €1.186. The Euro moved up against the Dollar to 1.121 from 1.086. Oil Price Brent Crude closed at $53.60 from $50.77. The average price in May last year was $46.74. The Russian - Saudi output accord boosted prices. UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.10 from 1.15. US Treasury yields moved down to 2.25 from 2.38. Gold closed at $1,251 from $1,224. John That's all for this week. Thanks to all who attended the Quarterly Economics Briefing at PwC this week. Our Economics Forecasts for May will be released soon, following the second estimate of GDP from the ONS © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.   Inflation Report this week. Inflation Report .. Governor warns of greater monetary tightening. The MPC voted 7 -1 to hold the bank rate at 0.25%, maintain the stock of government bonds at £435 billion and to maintain the purchases of corporate bonds at £10 billion. Good to know the Bank is easing borrowing costs for the likes of Apple Inc, with a market cap of $800 billion and cash reserves of $250 billion. Excellent!
The Old Lady's corporate bond purchases are an indicator of the drift in policy away from market reality. The UK corporate bond market is one of the few remaining investment niches in the investor search for Alpha. Valued overall at around £130 billion, best for the Bank to stay out. Otherwise the MPC will create the biggest "corporate bond bubble in history", just as has been done with gilts. So why are rates on hold? The Bank has adjusted the forecast for growth in the current year to 1.9% from 2.0% in February. It is a modest adjustment. A mere typo in publications from the Office for National Statistics. The Bank remains concerned about the prospects for household spending given rising inflation and the slow growth of wages. Inflation is set to peak towards the end of this year at just under 3%. Earnings are set to rise around 2%, hence the arithmetic squeeze on real incomes. The good news, slowing household spending will be offset by growth in investment and net trade. Business surveys and bank agents reports, imply that investment growth will be higher in 2017 than previously expected. The bank also believes that stronger growth in world trade and a weaker sterling will lead to an improvement in the net trade balance. Growth in world trade will lead to an increase in imports, this is true. The problem is exports have a high degree of import dependency. There is little or no substitution effect from sterling weakness. The growth in investment may well hold. The trade deficit (goods) will increase to over £140 billion this year. So what of growth? Growth in the first quarter was around 2.4% according to the preliminary estimate of GDP released at the end of April. The latest data for manufacturing and construction confirm our Q1 estimates of GDP growth. The portent for a larger trade deficit is also confirmed with an ominous rise in the first quarter trade gap. So what of rates? The Governor warns that if "the economy follows the path broadly consistent with the May projection, then monetary policy could need to be tightened by a somewhat greater extent than the yield curve would currently imply". And that is about as hawkish as the Governor has been for some time! Kristin Forbes was the only member of the MPC to vote for a rate rise this month. If the data unfolds as we expect others will be set to follow ... In other news this week ... The trade deficit in goods increased to £37 billion in the first quarter. This compares with a shortfall £32 billion in the same period last year and in the final quarter of 2016. For the year as a whole we project a trade in goods deficit on £144 billion compared to £134 billion last year. So much for the ephemeral benefits of sterling depreciation, as we have long explained. Growth in Europe and the rest of the world will stimulate demand for exports. Domestic growth and a high dependency on imports will compound the trade balance deterioration. The deficit in goods was offset by growth in the service sector surplus of £26 billion. The service sector, particularly tourism, enjoys much higher price elasticity [than goods] and profits from world growth. The overall trade in goods and services deficit for the year as a whole is likely to be over £45 billion compared to £37 billion last year. As the deficit moves to 2.5% of GDP, the Bank of England will be forced to review the accommodating monetary stance before markets force the call. Manufacturing growth increased by 2.3% in March and by 2.5% in the first quarter of the year. Construction growth increased by 1.8% in the same period. It's a "mixed bag". New housing was up by 4.3%, Commercial real estate growth was up by 7.3%. Infrastructure spending was down by 4.2%. Industrial building was down by 18%. The overall data for manufacturing and construction were in line with the preliminary GDP estimates. There has been no change to our outlook for the current year. We still expect growth to be between 2.0% and 2.4%. Strong growth, rising inflation and maturing trade gap ... time to tighten by a somewhat greater extent! So what happened to Markets? The Dow closed at 20,919 from 20,944. The FTSE closed up at 7,386 from 7,297. Sterling was down against the Dollar to $1.289 from $1.296 and was up against the Euro to €1.186 from €1.179. The Euro moved down against the Dollar to 1.086 from 1.099. Oil Price Brent Crude closed at $50.77 from $48.96. The average price in May last year was $46.74. The inflation impact fades into the second quarter of the year. UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.15 from 1.12. US Treasury yields moved up to 2.38 from 2.36. Gold closed at $1,224 from $1,225. John That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. It's usually a sell out so make sure you book now! As always we appreciate your support. "Join the Club" for those special insights into currencies and markets. Your support will boost our research and improve the products we offer. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  It's a car crash in April as new registrations fell by 20% in the month compared to prior year 2016. Should we worry about a slow down in consumer spending? Not really. Retail spending in the first quarter of the year was up by almost 5% compared to the same period last year. Higher inflation meant that more spending bought less in volume terms. Slowing volumes grabbed the headlines but values increased. Don't write off the consumer just yet.
Bumper car sales in March ahead of the increase in Vehicle Excise Duty pulled registrations forward into the first three months of the year. SMMT Mike Hawes suggests year to date sales remain strong up by 1.1%. A record 972,092 cars were registered in the first four months of the year. Diesel car sales are taking a hit. Sales were down 27% in the month and down by just over 6% year to date. Consumers are confused about diesel! For the year as a whole we expect registrations to be just over 2.7 million. A modest increase on the 2016 record. Over in the U.S. the Fed held rates at current levels signalling two further rate rises this year. Non farm payrolls rebounded in April with 211,000 joining the labor market, pushing the unemployment rate down to 4.4%. It hasn't been that low since May 2007. The President tweeted "Jobs, Jobs, Jobs" "Great jobs report! It's all beginning to work." Maybe running the economy is easy after all. Recruitment difficulties are increasing raising fears of a wage hike. The President may have to relax the rules on immigration and make a hole in the big beautiful wall to ensure "It" will continue to work ... In other news this week ... Markit/CIPS updates ... Construction growth picked up in April, driven by civil engineering activity, according to the Markit/CIPS Construction PMI. It was the sharpest increase in activity this year. The lead index jumped to 53.1 from 52.2 prior month. Greater demand led to greater hiring. The availability of sub-contractors became more restricted adding to the challenges in recruiting skilled labor. Demand for construction materials increased with supply lead times extending to the greatest degree since June 2015. Manufacturing increased to a three year high according to the Manufacturing PMI. The data suggested a strong start to the second quarter, following the 2.8% growth in the first quarter. The lead index leapt to 57.3 from 54.2 last month. Demand at home and in export markets remained strong. Concerns about cost inflation were evident. Advance purchase action, to hedge against further price hikes, was also significant in the month report. The service sector continues to deliver. The rate of growth accelerated in the month. The lead index increased to 55.8 from 55.0 in March. Strong demand is leading to a modest increase in job expansion with cost fears again evident in the sector. Overall the survey data suggests GDP growth is likely to continue into the second quarter at a similar rate to the first quarter. Last week, the preliminary estimate of GDP confirmed growth of 2.8% in manufacturing, 1.9% in construction and 2.5% in the service sector. Whilst many focused on the slowing quarter on quarter growth rate, we always focus on the year on year growth rate. It must have been around 2.4% given the strong growth in production, services and construction. In the UK. growth is above trend, inflation is rising, unemployment is falling, recruitment difficulties are increasing. In the U.S. the Fed is making the move. In the U.K. the Bank of England must act soon. It is not just "behind the curve ... it's asleep at the wheel ..." So what happened to Markets? The Dow closed at 20,944 from 20,950. The FTSE closed at 7,297 from 7,224. Sterling was up against the Dollar to $1.296 from $1.294 and was down against the Euro to €1.179 from €1.187. The Euro moved up against the Dollar to 1.099 from 1.089. Oil Price Brent Crude closed at $48.96 from $51.64. The average price in May last year was $46.74. The inflation impact fades into the second quarter. UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.12 from 1.10. US Treasury yields moved up to 2.36 from 2.32. Gold closed at $1,225 from $1,269. John That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. It's usually a sell out so make sure you book now! As always we appreciate your support. "Join the Club" for those special insights into currencies and markets. Your support will boost our research and improve the products we offer. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. _____________________________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ___________________________________________________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  The preliminary estimate for GDP in the first quarter of the year was released on Friday. The headline from the ONS was "the slowest rate of growth since" ... last year. UK GDP was estimated to have increased by just 0.3% in the quarter, compared to the prior three months. Growth is slowing according to most lead headlines today in the business pages today. But is it?
As readers of The Saturday Economist know, we prefer to look at the year on year growth rates and not the quarter on quarter comparison. Recent quarter data is adjusted far too often to be reliable as a quick snap guide. The year on year growth rate for manufacturing was 2.8%. The year on year growth rate for production output was 2.5%. The year on year growth rate for services was 2.5%. Construction output increased by 1.9%. The weighted growth rate for the economy as a whole in the first quarter of the year must have been 2.4%. A growth rate of 2.4% compares to growth of just 1.8% in 2016. Manufacturing output is boosted by strong output in the car sector. Strong growth is reflected in the fall in government borrowing. The ONS overall growth figure (year on year) as published is just 2.1%. That's a statistical impossibility given the strong contribution from production, services and construction accounting for 99% of total output. Strong growth continues into the first quarter of the year. We expect growth of between 2% and 2.4% for the year as a whole. US growth in the first quarter was 1.9%. Sterling is rallying against the Dollar as the reality of a rate hike in the UK is dawning and the prospects for Fed rate hikes is waning ... In other news this week ... Government Borrowing falls to £52 billion in 2016/17 Government borrowing fell to £52 billion in the financial year down by £20 billion from prior year. Public Sector Net Debt was £1.73 trillion, up by £123.5 billion in the period equal to 86.5% of GDP. Current receipts increased by 6% in the period boosted by strong growth in income tax and NIC contributions. VAT revenues were relatively modest given the low inflation outlook over the twelve months. Current spending increased by just 2% over the period. The Treasury has secured a prime fiscal surplus based on current revenue and spending out turns. So what of the years ahead? The OBR expects borrowing in the current financial year to increase to £58 billion, thereafter reducing to £41 billion in 2018/19. Given the drive to achieve an overall surplus in the next parliament, there will be little to give away in the Tory manifesto, although a further five year mandate will extend the timetable slightly if required. As it is, government borrowing could be eliminated within four years. Best month since 2000 for UK car manufacturing ... Exports continue to drive British car manufacturing in March as demand increased by 11% in the month according to the latest data from the SMMT. Overseas demand, accounting for over three quarters of sales, helped to push overall production to a 17 year high as output hit 471,695 units. Mike Hawes, Chief Executive said, "UK car manufacturing is accelerating thanks to the billions of pounds of investment committed over the last few years. Much of our output goes to Europe and it is vital we maintain free trade between the UK and the EU or we risk destroying this success story." 1.7 million cars were built in the U.K. in 2016 of which 70% were exported to the EU and the rest of the world. Output in 2017 is expected to increase to 1.8 million units as growth in the World and European economies continues. Car production and sales are interconnected with the EU. Motor, aerospace, finance and big pharma are the sectors most at risk from a "hard" exit. Negotiators would be wise to heed the Hawes call ... So what happened to Markets? The Dow closed at 20,950 from 20,566. The FTSE closed at 7,224 from 7,114. Sterling was up against the Dollar to $1.294 from $1.279 and was down against the Euro to €1.187 from €1.197. The Euro moved up against the Dollar to 1.089 from 1.068. Oil Price Brent Crude closed at $51.64 from $51.72. The average price in April last year was $41.58. UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.10 from 1.05. US Treasury yields moved up to 2.32 from 2.25. Gold closed at $1,269 from $1,286. John That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. It's usually a sell out so make sure you book now! © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is:  "Poor Retail Sales Raise Fears of a Brexit Slump" the headline in The Times today. Tom Knowles, Economics Correspondent, suggests the slowdown in the British economy has begun, after the sharpest fall in retail sales in seven years. Really?
Sure enough, the volume of goods sold in March increased by just 1.7% in the month and by just 2% in the first quarter of the year. This time last year sales volumes were racing along at over 4%. Inflation was muted. Spending in money terms, increased by just 1.6%. CPI inflation averaged 0.4% and goods inflation was negative. Should we really be too concerned by the headline drop in volumes? Perhaps not. An early Easter in March last year boosted sales volumes in the month and in the quarter comparison. Fuel sales were down by 4.5% in March this year, Easter travel plans delayed. Consumer spending in value terms increased by over 5% in March and 4.8% in the first three months of the year. Consumers are spending more to buy less in terms of volumes. Retail Price inflation in the March basket was 3.3% largely driven by an increase in petrol prices (up 16%). Excluding petrol, retail prices increased by 2.6%. Clothing and footwear sales increased by 6%, online sales increased by 20% accounting for 16% of all retail sales. No household income squeeze apparent in the retail sales figures, forget fears of a slowdown for now ... In other news this week ... The IMF upgraded forecasts for the world economy to 3.5% in 2017 and 3.6% in 2018. Forecasts for UK growth were upgraded to 2% from earlier estimates of 1.1% and 1.5%. Despite fears of rising inflation and household income squeeze, strong growth is set to continue according to the IMF head Christine Lagarde. Rising inflation and stronger growth are beginning to convince MPC member Michael Saunders of the need to raise rates much sooner than expected. In a speech to the Federation of Small Business this week, Saunders suggested growth and inflation in 2017 could be higher than the Bank of England forecast in February. He also suggested rates at 0.25% were already "accommodative" and would need to rise. Kristin Forbes has already broken ranks and called for a rate hike to 0.5%, reversing the August move last year. The hawks are gathering on the MPC. In "other news" the Prime Minister called a snap election in June. Capitalising on a twenty point lead in the polls and the prospect of a near 100 seat majority in the house, the move is designed to out-manoeuvre Labour and back bench dissidents in the Tory party. Any EU deal will be a result of tough negotiations with the EU group and tougher negotiations with the Conservative parliamentary group. Better a bigger majority to convince doubters to accept the outcome of any deal. A mandate for Brexit? Not really. 48% of voters voted remain and one third of Conservative voters wanted to stay. Will tactical voting boost the Lib Dem vote? Will the move lead to the Scotland's separation and the unification of Ireland? Another hustings cliff hanger in the short months ahead. The Tories could even lose the election warns Tory strategist Lynton Crosby ... Four legs good, two legs bad ... or is it two legs ... The US announced this week, the EU would be bumped ahead of the U.K in any trade deal. Despite the preference for bilateral deals, President Trump has been forced to accept a deal with Germany could not be achieved without an overall agreement with the trade bloc. Despite asking Merkel many times for a one on one deal, the German Chancellor stayed firm to the cause. Perhaps this explains the sulky reluctance to shake hands before the camera during the White House visit. TTIP is back on the agenda along with a love for the EU, NATO, the IMF and the World Bank. Like some Orwellian conversion, the four legs good, two legs bad mantra is yielding to the reality of life in Animal Farm and the White House Zoo. How do you influence President Trump on policy? Try to be the last man (or woman) standing on two legs before a policy statement is made. The Italian Prime Minister Paolo Gentiloni received the treatment this week. Welcomed to the White House, Trump reads a list of national characteristics like the anchor on a reality show introducing a hapless contestant. "The timeless contribution of Italy to civilization and human progress, stretching all the way back to ancient Rome, your nation has been a beacon of artistic and scientific achievement, from Venice to Florence, from Verdi to Pavarotti (a friend of mine ... a great friend of mine), history and culture have only grown stronger because we are great friends and allies... Cynical to point out Pavarotti has been dead for ten years. Strong allies" the Italian Prime Minister asked Trump to step up his commitment to Libya. A hasty and undiplomatic response followed. Would the US take a greater rôle in Libya? Trump replied I have enough rôles. Pretending to be President probably the most demanding but Syria, Iran, Korea, Japan, Russia ... it's tough being President of the United States. Trump has a flair for offending friend and foe alike. Following conversations with President Xi, Trump had learned Korea was once part of China! OK, you would have to go back as far as the Ming Dynasty for confirmation. Korea had also been part of Japan at the turn of the century. The South Korean government was alarmed. A possible Beijing annexation of the North Korea back in the agenda? Some relief the Easter Pyongyang crisis had been averted. To discover the U.S armada was sailing in the wrong direction at the time of the White House call to action, still a cause for some concern. The picture of the Easter bunny on the White House balcony is our photo of the week ... The bunny looking slightly more shocked to be with the leader of the free world ... That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here So what happened to Markets? The Dow closed at 20,566 from 20,453. The FTSE closed at 7,114 from 7,327. Sterling was up against the Dollar to $1.279 from $1.253 and was up against the Euro to €1.279 from €1.1179. The Euro moved up against the Dollar to 1.068 from 1.062. Oil Price Brent Crude closed at $51.72 from $55.64. The average price in April last year was $41.58. UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.05 from 1.057. US Treasury yields moved down to 2.22 from 2.232. Gold closed at $1,286 from $1,286. John That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________ If you do not wish to receive any further Saturday Economist updates, please unsubscribe using the buttons below or drop me an email at jkaonline@me.com. If you enjoy the content, why not forward to a friend, they can sign up here ... _______________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. John Ashcroft and Company.com _______________________________________________________________________________________________________________ Copyright © 2017 The Saturday Economist, All rights reserved. You are receiving this email as a member of the Saturday Economist Mailing List. You may have joined the list from Linkedin, Facebook Google+ or one of the related web sites. Our mailing address is: The Saturday Economist, Tower 12, Spinningfields, Manchester, M3 3BZ, United Kingdom.  Goods inflation jumped to 2.5% in March up from 1.9% prior month. The headline rate of inflation CPI held at 2.3% due to a surprise drop in service sector inflation. Service sector inflation fell from 2.8% in February to 2.1%. It's hard to see why. A 23% drop in air travel costs assisted the fall but doesn't explain the overall drop. Had service sector inflation held at 2.8%, the overall inflation rate would have been 2.6%. That's well above the Bank of England target. We expect a bounce back in prices in the next couple of months towards our 3% forecast. Producer output prices increased by 3.6% in March and input costs eased slightly to 17.9% from 19.4% in February. The inflationary combination of rising oil prices and the fall in Sterling is beginning to ease as the first quarter 2016 lows in Brent Crude Oil work out of the year on year comparison. The Bank of England remains relaxed about the rise in inflation. The expected acceleration in earnings is not evident in the latest data for February. More economic news this week ... Earnings in the three months to February increased by just 2.3% according to the latest ONS data. The real level of earnings reduced to zero as CPI inflation hit the same level. Should we worry about household spending in the second half of the year? Maybe! Household incomes may be squeezed if inflation continues to rise but then again earnings may rise to offset the price increases. Worth pointing out perhaps retail sales values increased by 6.4% in the same month. No sign of a spending or activity slow down just yet. Last week our headline "Strong growth continues into the first quarter caused a few comments. Asked to commit to a number for growth, we expect growth to be between 2.3% and 2.5% in the first quarter. Inset is our estimate of GDP(O). It is not rocket science, more simple arithmetic. Assuming no radical revisions to the ONS data already released, output is likely to have increased by 2.5% in the first three months of the year. Unemployment fell to 1,559 thousand in February down from 1,584 prior month. It is at the lowest level since Q3 2005 when inflation was 2.8% and base rate was 4.5%. The unemployment rate in February was unchanged at 4.7%, the number of vacancies increased to 767,000. At peak in February 2008 and immediately before recession, the level was just below 700,000. Recruitment difficulties are increasing, the pressure for pay increases is rising, the tide is set to turn in the earnings market. Growth 2.5%, inflation 2.5%, unemployment falling, vacancies at a record high, now is the time to begin the process or rate normalization. The absurd process of corporate bond purchases should be abandoned. The market is thin, the products heterogeneous, do we really believe Apple and IBM need assistance to reduce the cost of borrowing? In the US Trump may place some pressure on Janet Yellen to avoid further rate hikes. The weak jobs growth in March may assist. Inflation is muted, retail sales growth is slowing, forecasters are trimming US growth expectations for 2017. Markets still expect two more rate rises this year. In the U.K. the Bank should act to cap the spread against the green back ... Don't Miss The West Wing, Whisky, Tango, Foxtrot this week ... You can check out the series of blog posts here So what happened to Markets? The Dollar slipped on the Trump call. The Dow closed at 20,453 from 20,711. The FTSE closed at 7,327 from 7,349. Sterling was up against the Dollar to $1.253 from $1.238 and was up against the Euro to €1.179 from €1.1168. The Euro moved up against the Dollar to 1.062 from 1.059. Oil Price Brent Crude closed at $55.64 from $55.19 The average price in April last year was $41.58. UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.05 from 1.07. US Treasury yields moved down to 2.23 from 2.32. Gold closed up at $1,286 from $1,255. John That's all for this week. Don't miss our economics update at PwC Manchester on the 18th May. © 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing. ______________________________________________________________________________________________________________ The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of advice relating to finance or investment.. ______________________________________________________________________________________________________________________________ For details of our Privacy Policy and our Terms and Conditions check out our main web site. 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