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.
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.
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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 presentation should not be construed as the giving of investment advice.