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March Data Show Economy Still Half-Frozen

Fri, 18 Apr 2014

Economic data for last month didn't provide the full spring forward many hoped for and the economy seems to be stuck in its 2%-2.5% GDP growth rut, says Morningstar's Bob Johnson.


Video Transcript

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. Has spring finally sprung in economic data? I'm here with Bob Johnson, our director of economic analysis, to look at some recent metrics.

Bob, thanks for joining me today.

Bob Johnson: Great to be here.

Glaser: We are starting to get lot of the data for March, and this had been closely watched. Why does this month seem like something more important than maybe some others we've seen recently?

Johnson: It's particularly important because we've had so many months that had been badly affected by weather. Even starting back in November, December, January, cold weather, shifting patterns made the data really, really hard to interpret. And if you looked at just the raw data, you'd say the economy was deteriorating pretty fast. If you consider that the weather might have been behind that, then maybe it's not so bad.

So March was a number where the weather was at least a little better, and after three months of really bad weather, it certainly was better and will give us a chance to look at the data. There may be a little less weather impact. And it should include probably a little bit of a bounceback factor. And so we're all watching the data with bated breath. And frankly the expectations for the data this week were exceptionally high with everybody expecting a really, really good bounce in March.

Glaser: So there has been some good data, some bad data, and some stuff in between. Let's start with the good. The first is auto sales. Can you tell us about those.

Johnson: That's probably the best number of the batch. Those numbers have been volatile, we've had some great months followed by usually a couple of bad months. We had a great August, we had a great November. But since November's 16.3 million units, we've been under 16 million for December, January, and February. And finally now we got the March numbers at 16.3 million, which matched the November number, and was the highest number we've seen so far this recovery.

That was certainly an impressive number. We got the bounceback we needed. We desperately needed it because the auto producers have been producing a lot of cars, and if they hadn't sold them, we would have a lot of cars built up in inventory. So I was really pleased with that number.

The only dark spot on that at all is that the year-over-year growth rate was about 6.8%. It had been as high as 7.8% last March. So the year-over-year growth rate did deteriorate just a little bit. But still at that 16.3 million units, that's great. If we can sustain that at least for another month or two, I think we're going to be in great shape, and it certainly indicates some consumer confidence or at least some great incentives from the dealer's; one of the two. But it was a good month for auto sales.

Glaser: Speaking of consumers what did broader retail spending look like?

Johnson: That was probably the second-best number out of the five metrics that we're going to talk about. Retail sales came in at month-to-month growth of 1.1%; that's versus expectations of 0.9%. Again part of that is driven by the strong auto sales that we saw. But even ex-autos, the numbers were way above expectations. So I was pleased with that number. In retail sales we had also the benefit that the growth in February was 0.7% it was 1.1% in March, so kind of that accelerating trend that you like to see. So I was very pleased with that.

On the other hand, we always warn you really should be looking at year-over-year kind of average data to get some of the anomalies out of there. And unfortunately that number is still kind of in the doldrums. The year-over-year growth in retail sales was just 2.5%, and we usually like to see something closer to 4%. The long-term average is 3.7%. So we're not out of the woods there yet.

I mean we had so many bad months that one month doesn't exactly offset it. And sometimes you don't really catch that unless you look at the year-over-year data, which was again a little bit disappointing, but not horribly so. And I'm really glad that we have at least turned the trend, and it's an accelerating trend.

Glaser: In the negative column, you put jobs in there. Why is that?

Johnson: Jobs is a little bit of a closer call. But the expectations when we first got the report were that we were going to have 200,000 jobs added and we would see an acceleration from the previous month. Instead we got 192,000 jobs. Not a huge miss but nevertheless, everybody has kind of been saying "Maybe I will do a little better than that." And it didn't come in. It came in a little bit short of expectations and certainly below the whisper numbers.

And at that 192,000 it's actually below the job growth we got in February. So unfortunately, we talked about the accelerating trend in retail, but in the job market it was the other--a decelerating trend, which is never a good thing to see in the year-over-year growth rate. We are still where it's been forever. The last three years it has been right around 2% [growth]; the statistical average is 2.1%. We came in at 2%, that's for private-sector job growth, so just a tad below the averages. Again just a little bit of a disappointment.

And certainly everybody kind of looked at the number. And it's better month to month and better than the sub-100,000 jobs we did back earlier this year. But it's still not over the 200,000 level that we saw in October and November. It's an improved number but given all we've been through, we were all hoping for a little bit better on that one.

Glaser: How about housing starts, and why were those disappointing?

Johnson: Housing starts really missed the number by a lot. A lot of us had thought we might do close to 1 million housing starts in the month of March and the reason for the optimism is permits were well over 1 million units. Usually permits turn into starts, and the number had been depressed because of weather. And we thought it's going to come roaring back. Maybe it's not a very representative number but at least it will come roaring back, and we could all cheer for a day anyway. But we even lost that chance to cheer.

The housing starts came in at 946,000, which was barely up from 920,000 the month before. So the housing market's still kind of a little bit in the doldrums here, and permits came back a little bit, too, this month. That's certainly not good news for the housing market, and starts are our big driver of GDP growth. And so I was disappointed to see the numbers.

Luckily the disappointment was a little bit more on the multi-family-home side, which provides a little bit of smaller boost to GDP than a stand-alone single-family home. But nevertheless the number was truly disappointing following some pretty disappointing numbers for several months.

Glaser: In the middle of the road was the industrial production reading. What's happening in the manufacturing sector?

Johnson: I think we did OK there. I think overall industrial production was up 0.7% [year over year]. It was supposed to up something like 0.5%. So a surprise on the upside, and it also increased from 0.3% to 0.7% from February to March, as I talked about kind of that accelerating trend, which is good to see. The year-over-year data weren't good, but at least I can say it was improved. So that's why it's a mixed message. The year-over-year growth was 2.2%. The long-term average is closer to 3% in terms of industrial production growth. We are below that, but the good news is we did move from 2.2% to 2.4%. So again when you consider how many bad months we had, it starts to take a lot to bring it back up again. And we just didn't get that big boom in the number. We got a decent number, but not a big boom.

I guess the other thing I'd add is there is a good thing in that number, as we're finally, in terms of the IP manufacturing, back to where we were at the start of the recession. And index is almost back to 100 again. So that's good news for the economy.

Glaser: Taking all these data together, does it seem like we really can say that some of those bad data we saw before truly was just weather-related? What does this mean for your GDP estimate? What do you think the economy can produce for the entire year?

Johnson: Given the March batch of data, there was no number that kind of set a new trend. You'd think that maybe you would have one month that would really just knock the cover off the ball, such as 2% retail sales growth or 17 million auto units sold or something. If it was really all about the weather, you would really kind of expect to see one of those outsized moves. You have to discount it a little bit, but at least you'd see it. And it looks like more the numbers just came back to averages, not anything kind of beyond that.

So I think we're on the same 2% to 2.5% general GDP growth rate. I still think 3% is out of the question. I think we will still probably have some half-way decent numbers in April because the March number still had a little bit of weather in them. So I think April may turn out to be a half-way decent month.

And Easter came a little bit late this year, so that will help the April data along, as well. So I'm optimistic about April, but that's just kind of the bounceback. I'm not expecting to set things at a new level of growth of something that looks more like 3%.

Glaser: Bob, thank you as always for your analysis.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser.

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