Market News

Monthly Economic Update: May 2019

Global Growth Holds Steady: U.S., Europe and China Data Puts Off Slowdown Fears for Now

But storm clouds gathering with renewed concerns over U.S., China trade war.

Don’t count the global economy out just yet. In addition to a U.S. report that exceeded expectations, Europe’s struggling economy also showed some signs of improvement during the first quarter, while data out of China continues to generally indicate that the country’s manufacturing and services sectors are still in growth mode.

In Europe, the eurozone economy 1 grew by 1.2% in the first quarter compared to a year ago. While soft data readings on the manufacturing and services sectors continue to show mixed performance, with services generally outpacing manufacturing (particularly in Germany), confidence measures are picking up as fears of a recession subside. The Sentix research group’s index of investor sentiment 2 for the eurozone rose to 5.3, its highest level since November 2018.

In China, the government’s efforts to support the economy appear to be taking effect on the domestic front, though the potential for slower demand from global trading partners is still a concern. The country posted better-than-expected economic growth for the first quarter, with gross domestic product rising by 6.4% compared to a year ago. Industrial production rose at its fastest pace since July 2014, while retail sales and fixed asset investment also rose within expectations, according to this CNBC report. 3

One thing to note is that much of the data for this report were released prior to what appears to be a breakdown in the trade negotiations between the U.S. and China. President Donald Trump imposed a May 10 deadline to raise tariffs on Chinese goods to 25% from 10%. China may be preparing retaliatory tariffs if the U.S. does indeed move forward. The decision to possibly raise tariffs has been a major factor in the added volatility in global financial markets during the first full week of May.

Strong U.S. GDP Report Also Shows Some Signs of Weakness

The U.S. economy grew at its fastest first-quarter rate in four years with the Commerce Department reporting in late April that gross domestic product rose by 3.2% at an annualized rate.

The so-called “advance estimate” of GDP reflected an acceleration in exports, private inventory investment, and state and local government spending. Consumer spending also increased but decelerated from the previous quarter, as did nonresidential fixed investment spending and federal government spending, the Commerce Department said. 4

There were some key takeaways from the report. On the plus side, exports rose and imports declined, as companies had bulked up on imported goods in the final quarter of 2018 ahead of uncertainty in the outcome of the U.S. and China trade talks. The increase in inventory investment was a benefit for the first quarter, but could shave some growth off GDP in the second quarter if companies draw down on those inventories rather than book new orders.

On the flip side, consumer spending, a main driver of the domestic economy, rose by only 1.2% in the first quarter compared to 2.5% in the final quarter of 2018. Also falling on a quarter-over-quarter basis was nonresidential fixed investment, which includes spending on such items as software, equipment, and research and development. Spending on those items increased by 2.7%, down from the 5.4% clip reported in the fourth quarter.

Housing also continued to be a drag on growth, with private residential investment contracting by 2.8% from the previous quarter. While not as great as an investment blip as the 4.7% rate of decline in the fourth quarter, housing investment declined for the fifth straight quarter.

Sales to private domestic buyers, which takes out trade, inventories and government spending, rose by 1.3% from the previous quarter, the slowest pace in nearly six years.

Diane Swonk, chief economist at Grant Thornton said over half of the first-quarter GDP gains can be attributed to the surge in inventories and narrowing in the trade deficit. Consumer spending and business investment slowed to a crawl, she said in a blog post. 5

“This is one of the weakest 3% growth quarters I have ever seen. Underlying momentum in the domestic economy was particularly weak. Now we have to deplete inventories that have been built up for the better part of a year. Our forecast holds for a slowdown in 2019,” she wrote.

Late April’s report on GDP growth, with its strong headline figure but signs of slowing growth in key areas, was followed by a stronger-than-expected report on the labor market. Seasonally adjusted nonfarm payroll employment increased by 263,000 in April, with the nation’s unemployment rate declining by 0.2 percentage point to 3.6%, its lowest since December of 1969, according to the Bureau of Labor Statistics (BLS). Average hourly earnings rose by 6 cents from the previous month to $27.77. Average hourly earnings have risen by 3.2% over the year. 6

Job growth was strong in professional and business services, which added 76,000 jobs in April, 53,000 in administrative and support services, a surge that is worth watching if it can be repeated in May’s report. The services sector has been one of the engines for the labor market in the past 12 months, adding 535,000 jobs during that period.

Manufacturing employment, however, slowed, a trend that was also notable in the Institute for Supply Management’s (ISM) April report on business. Government figures from the BLS showed that manufacturing employment, which added 4,000 jobs in April, changed little for the third month in a row. In the 12 months prior to February, the industry had averaged an additional 22,000 jobs per month, according to the BLS.

For its part, the ISM employment index fell 5.1 percentage points to 52.4 in April, nearly a two-year low. Other indicators from ISM’s report 7 showed that the manufacturing sector expanded at its slowest pace since October 2016 with the manufacturing index falling to 52.8 in April from 55.3 in March. Further weakening was evident in the new orders index, which fell 5.7 percentage points to 51.7, the lowest since August 2016.

Overall, respondents cited some concern about the knock-on effects of supply chain issues if disruptions at the U.S.-Mexico border were to emerge, as well as the threat of tariffs. On a broader note, Timothy Fiore, chair of ISM’s manufacturing survey, told reporters that the slowing global economy was likely beginning to weigh on U.S. manufacturers.

“When this whole manufacturing expansion started 32 to 36 months ago we were in what was synchronous growth, where most of the major economies of the world were all expanding and that’s just not the case anymore,” Fiore said in this AFP report. 8

Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics, said the latest ISM manufacturing report was disappointing but a rebound could be likely in the coming months as data on purchasing managers activity in China continues to hold steady. “It’s disappointing but not disastrous because the levelling-off in China’s PMIs in recent months strongly suggests that the incremental downside risk in the ISM from here is very limited,” he wrote in a client note cited in the AFP report.

Real Estate: Mixed Signals in Housing Market, Yet Some Indicators Show Potential Future Demand

The spring selling season in the U.S. housing market has yet to kick into full gear, but signs of more buying interest were evident in recent data for mortgage applications to purchase homes. The Mortgage Bankers Association’s purchase index gained 4.0% compared to a week ago on a seasonally adjusted basis. The MBA’s overall composite index was up 2.7%, yet refinance activity only increased 1.0%.

“With purchase activity increasing and mortgage rate movements mostly unchanged, the refinance share of applications were at their lowest level since last November,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement. 9



While the MBA’s weekly survey can tend to be volatile, the purchase index, on an unadjusted basis for seasonal factors, was up 5.0% compared to a year ago, and is running at a multi-year high for this time of year.

The more forward looking data comes at a time when existing home sales fell again, according to the most recent data from the National Association of Realtors, failing to continue on from a rebound in February. The realtor group reported that sales in March fell by 4.9% to a seasonally adjusted annual rate of 5.21 million from the previous month, and 5.4% from a year ago. 10 In February, sales rose by 11.8%, the largest month-to-month gain since December 2015.

Yet, similar to the recent increase in mortgage applications in early May, there is some potential optimism for the housing market from another indicator from the National Association of Realtors. Its pending home sales index increased 3.8% in March from a year ago. The index, which tracks contract signings, was still down 1.2% from a year ago, marking the 15th consecutive month of annual declines.

Lawrence Yun, NAR chief economist, forecast that pending home sales numbers will begin to climb more consistently. “We are seeing a positive sentiment from consumers about home buying, as mortgage applications have been steadily increasing and mortgage rates are extremely favorable,” he said in a statement. 11

Home prices in many areas of the country remain elevated, though price appreciation has been slowing for several months, and is beginning to favor buyers more than sellers in an increasing number of markets, though calls for an outright buyers’ market may be premature.

Figures released in April show that home prices as tracked by the S&P CoreLogic Case-Shiller National Home Price Index continue to decline. Prices nationally rose 4.0% in February compared to the previous year. The top 20 metropolitan areas posted a 3.0% year-over-year gain. 12

Zillow Group said the February results for home price growth were the slowest since 2012. “The slowdown reflects the wider range of inventory that buyers had available this winter, which gave them more breathing room around prices than they have had in a while,” Matthew Speakman, a Zillow economic data analyst. “Buyers might be lured by falling mortgage rates heading into spring, although rates have been low for so long that they no longer spur the kind of intense demand that drives up prices.” 13

Among the 100 largest metropolitan areas, conditions in 50 are now shifting in favor of buyers, a ten-fold increase from just five metros a year ago, according to Trulia LLC. The years-long trend of declining days on the market has come to a stop, price cuts are increasingly common, and homes are more likely than in prior years to sell below their original list price. This national trend is also playing out locally, with the most expensive neighborhoods shifting most in favor of buyers, Trulia’s housing economists say. 14

“Even so, affording a home and negotiating the most favorable deal may still prove challenging for many buyers – because despite these shifting conditions, most metro areas remain tilted heavily in sellers favor,” they add.

Stock Market Gains Continued in April, But Key Themes for Global Markets Losing Traction

Trade concerns lead to selloff in early May.

Global stock markets continued their strong gains since the start of the year with the S&P 500 in the U.S. hitting four new closing highs in the final days of April. Year-to-date through April, the S&P 500 is up 17.50%, while the Dow Jones Industrial Average (DJIA) has gained 13.62%. The Nasdaq Composite has risen by 23.04%.

For the month, the S&P 500 tacked on 3.93%, followed by the DJIA, which was up by 2.56%. The strong rotation into technology stocks was evident with the Nasdaq posting gains of 4.74%. A closer look at market leaders and rotation this past month based on sector performance within the S&P 500, shows financial stocks leading the charge, up 8.84% for the month, while information technology rose by 6.36%. Defensive sectors didn’t fare as well. The S&P 500 health care sector declined by 2.74%, while utilities rose by 0.88%, according to S&P Dow Jones Indices. 15



Key barometers for U.S. small-cap stocks also continued to rally. The Russell 2000 is up 17.99% this year through April, while the Russell 1000 has gained 17.89%. With trade woes again among investors’ concerns and some of the larger-cap companies within the S&P 500 warning of foreign exchange pressures on profits with the strong dollar, small-cap shares continue to be in favor among some investors. Investment strategists at Charles Schwab, however, caution about the high debt profile among small-caps, “as well as the record-large percentage of profitless small cap companies.” 16

In Europe, the Stoxx 600 gained 3.23% in April and is up 15.90% since the start of the year. While Japan’s Nikkei 225 was up by 4.97% this past month, it has lagged price gains in the U.S. and Europe, rising by 11.21% this year through April. Overall, developed markets as tracked by the S&P Broad Market Index (BMI) posted a consolidated 3.24% gain for the month, while the return excluding the U.S. was 2.31%. The BMI Index for emerging markets posted a 1.98% gain this past month, according to S&P Dow Jones Indices. The recent strength in the U.S. dollar is putting some pressure on emerging market currencies as well as equity markets. Stocks in Brazil, as tracked by S&P Dow Jones Indices, fell 1.10% in April, while the BMI for Turkey was down by 3.61%.

Looking ahead, the Federal Reserve left short-term interest rates unchanged at its meeting on May 1. Fed Chair Jerome Powell did note that low inflation appears to be “transitory,” which led to market participants shifting expectations that the Fed will likely keep rates where they are for now, rather than potentially cutting later in the year. A dovish Fed had been a key factor in the significant rally this year for stocks and corporate bonds.

Another key theme for the market, at least up until May, had been reports and expectations from market participants that progress was being made on the trade talks between the U.S. and China. That market underpinning, however, has been turned on its head with the threat in early May of more U.S. tariffs on Chinese goods.

News that all may not be smooth on the trade front has led to a repricing of assets. As of the close of trading on Tuesday, May 7, the S&P 500 was down by 2.10% since the end of April, while the DJIA has declined by 2.36%. The Nasdaq has lost 1.63% during the same period.

“Trade war concerns have ebbed and flowed in the last eighteen months, that part isn’t new,” Putri Pascualy, managing director for PAAMCO, said in this Fox Business report. “What is new is market reaction. Previously investors happily shrugged trade risk, citing growth as a reason for bullishness. These days, risk factors aren’t being shrugged off so easily. The math on risk premia for multiple asset classes have changed.” 17

Commodities: Geopolitical, Supply Issues Key Factors for Oil Prices

With sanctions looming on Iranian oil sales, the country’s president said it will resume uranium enrichment within 60 days beyond the limits agreed to under the 2015 nuclear deal. That is, if European countries that signed on to the treaty can’t find a way for Iran to continue to sell oil and trade with the world.

The potential for “involuntary” production cuts from one of the globe’s biggest producers is only one factor in the supply and demand equation for oil markets in the upcoming weeks and months.

Already this year, oil prices have risen significantly. Through April, West Texas Intermediate crude prices have risen by nearly 40.75% to $63.91 a barrel. Brent crude prices are up 35.32% during the same period at $72.80 a barrel. Prices for WTI crude and Brent crude each rose by more than 6.0% during April. Since the start of May, however, crude prices have sold off by about 4.0%, partly a result of fears that an escalation in tariffs on Chinese goods by the U.S. could dampen global economic growth.

Yet, the Brent crude futures curve is also showing that prices for contracts more forward in time than front month contracts are priced higher, an indicator of support for higher oil prices later in the year. Markets may be setting up for a potential demand shortfall in the upcoming months.

Iranian Waivers Ending

In late April, the Trump administration said it wouldn’t extend the 180-day waivers announced in November for eight big importers of Iranian oil, including China, India and Japan. Those countries could now face U.S. sanctions for purchasing Iranian oil. While Saudi Arabia has been urged to make up for any potential shortfall in daily supply from potential disruptions from Iranian output, it isn’t clear if it will move quickly or wait to see if sharply lower Iranian oil exports drive a supply and demand imbalance in global crude markets.

On the flip side for the oil market is the added uncertainty of whether global economic growth could suffer if the U.S. were to move forward with another round of tariffs on China – which is also a large purchaser of Iranian oil. Ahead of the expiration on Iranian oil purchase waivers, China’s monthly imports in April hit a record.

Whether or not oil markets tighten as a result of voluntary production cuts from OPEC and other countries such as Russia, or from involuntary cuts due to Iranian sanctions, remains unclear. The Organization of the Petroleum Exporting Countries (OPEC) is set to meet later in May to discuss production for the rest of the year.

Reuters reported that Bank of America Merrill Lynch expects Saudi Arabia to bring back production slowly as Iranian barrels exit the market. Goldman Sachs, though, said the recent pullback in Brent prices are too low given the tight fundamentals and growing supply risks, just as refiners come back from extended spring turnarounds. 18




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1-Eurostat. (2019, April 30). Preliminary flash estimate for the first quarter of 2019 [Press Release]. Retrieved from:

2-Sentix. (2019, May 5). It gets better. Sentix Economic News. Retrieved from:

3-Lee, Y. (2019, April 16). China says its first-quarter GDP grew by 6.4 percent, topping expectations. CNBC. Retrieved from:

4-Bureau of Economic Analysis. (2019, April 26). Gross Domestic Product, First Quarter 2019 (Advance Estimate). U.S. Department of Commerce [Press Release]. Retrieved from:

5-Swonk, D. (2019, April 26). Head Fake on GDP. Grant Thornton, Economic insight & analysis blog. Retrieved from:

6-Bureau of Labor Statistics (2019, May 3). The Employment Situation – April 2019 [Press Release]. Retrieved from:

7-Institute for Supply Management (2019, May 1). April 2019 Manufacturing ISM® Report On Business® [Press Release]. Retrieved from:

8-AFP (2019, May 1). US manufacturing in April slowest since 2016. Retrieved from:

9-Mortgage Bankers Association (2019, May 8). Mortgage Applications Increase in Latest MBA Weekly Survey [Press Release]. Retrieved from:

10-National Association of Realtors (2019, April 22). Existing-Home Sales Slide 4.9% in March [Press Release]. Retrieved from:

11-National Association of Realtors (2019, April 30). Pending Home Sales Climb 3.8% in March [Press Release]. Retrieved from:

12-S&P Dow Jones Indices (2019, April 30). S&P CoreLogic Case-Shiller Index Shows Annual Gains Continue To Decline [Press Release]. Retrieved from:

13-Speakman, M. (2019, April 30). February Case-Shiller Results and March Forecast: Home Price Growth Slowest Since 2012. Zillow Group. Retrieved from:

14-Chacón, F. and Deal, E. (2019, April 18). Shift to More Buyer-Friendly Conditions Chipping Away at U.S. Home Sellers’ Years-Long Advantages. Trulia LLC. Retrieved from:

15-Silverblatt, H. (2019, May 2). U.S. Equities Market Attributes April 2019. S&P Dow Jones Indices Market Attributes®. Retrieved from:

16-Sonders, L., Kleintop, J. and Sorensen, B. (2019, April 26). Schwab Market Perspective: Concerning Lack of Concern? The Schwab Center for Financial Research. Retrieved from:

17-Obel, M. (2019, May 7). US stocks in major sell-off on worsening trade tensions. Fox Business. Retrieved from:

18-DiSavino, S. (2019, May 7). UPDATE 8-Oil falls on concerns over trade, high U.S crude supplies. Reuters. Retrieved from:

Sources for Financial Data:

Dow Jones Industrial Average:                                                                                                                                                                                                                             

S&P 500:                                                                                                                                                                                                                      


10-Year Treasury TIPS:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Russell 2000:                                                                                            

Russell 1000:                                                                                             

Stoxx 600:  

Nikkei 225:    

West Texas Intermediate Crude:                                                                         

Brent Crude:

Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ FG 19-82

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