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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US GDP: Trump hails pick-up in growth, but consumer spending slows - as it happened

Shipping containers from China and other nations are unloaded at the Long Beach Port in California
Shipping containers from China and other nations being unloaded at the Long Beach Port in California Photograph: Mark Ralston/AFP/Getty Images

And finally, here’s our news story on the US GDP report:

Have a lovely weekend! GW

European stock markets have closed for the night, with small losses in London and gains elsewhere.

Investors seem to have shrugged at the US GDP report - understandable, given the weakness beneath the strong topline numbers.

European stock markets at the close, April 26 2019

Trump sinks oil price

President Trump has also shown his market-moving powers, by knocking the oil price down.

He performed this feat by telling reporters in Washington that he’d called the Organization of the Petroleum Exporting Countries and told them to get prices down.

Trump declared:

“Gasoline prices are coming down. I called up OPEC, I said you’ve got to bring them down. You’ve got to bring them down,”

It’s not clear who Trump spoke to..... but traders have reacted by knocking Brent crude down by 3.5% to $71.76 per barrel. Yesterday it hit $75/barrel for the first time this year, after Trump tightened oil sanctions on Iran....

Here’s a clip of Larry Kudlow explaining that today’s GDP figure is a “blowout number”.....and that interest rates may need to fall!

Robin Anderson, Senior Global Economist at Principal Global Investors reckons Donald Trump is right - there’s not enough inflationary pressure to justify an interest rate hike.

“The Fed has to be confident in its patient stance. The headline GDP print suggests that the U.S. economy is doing just fine, so there is no reason to cut rates.

But, before the Fed hikes next, they want to see inflation come back to life. Right now, inflation is nowhere to be found.”

Bad news for the president - some economists predict US growth will decelerate in the coming quarters.

Here’s Ronald Temple, Head of US Equity at Lazard Asset Management.

“While the headline US GDP number was much stronger than expected, the components that measure domestic demand were weak. Specifically, growth in real final sales to private domestic purchasers was only 1.3% versus 3.1% in 2018.

Looking beyond the first quarter, I continue to expect growth to decelerate from 2018, but still remain above 2% for the full year.”

Trump hails GDP figures

President Trump has cheered today’s growth figures:

Why the reference to inflation? That’s a clear hint to America’s central bankers not to raise interest rates -- something that could slow the economy ahead of the next presidential election.

Shares have dipped slightly on the New York stock exchange, as traders digest the GDP numbers.

The Dow Jones industrial average is down 20 points, or 0.07%, while the tech-focused Nasdaq has lost 0.3%.

Stephen Hubble, Chief Analyst at currency firm Centtrip, explains:

“US GDP smashed the forecast of 2% growth, having come in at 3.2% for the first quarter of the year.

However, the market reaction was muted due to a surprise drop in personal consumption expenditure (PCE) measuring inflation in goods and services.

Leading Republican Newt Gingrich is hailing the “Trump effect” - again, ignoring that the detail of today’s growth report isn’t as strong as the top line.

Donald Trump’s political allies are cheering today’s GDP report (and not digging into the problems economists have spotted).

Donald Trump’s top economic adviser Larry Kudlow is discussing the growth report on CNBC now.

He says the 3.2% growth rate is strong, and a positive sign of Trump’s handling of the economy.

But he then goes on to suggest that interest rates may need to be cut, due to slowing inflation....

Currency analyst Marc-André Fongern, though, argues that America’s economy is too strong to justify interest rate cuts.

The details are telling us GDP data is mixed. Ok, but the U.S. just expanded 3.2% while the rest of the world, especially Europe is fragile.

The US dollar is still the pole position starter...Please, end the talk of rate cuts.

Jason Furman, who chaired President Obama’s Council of Economic Advisers, also urges caution about the growth figures:

Paul Ashworth of Capital Economics isn’t impressed with the blowout US growth report.

He argues that the underlying picture is weaker than the 3.2% headline growth figure suggests, once you strip out certain elements:

Taking out the over-sized boosts from net trade, inventories and highways investment, which will all be reversed in the coming quarters, growth was only around 1.0%.

Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year-end.

US GDP: The key points

The bottom line is that today’s US growth report appears better than expected, but there are some concerns under the surface - mainly due to falling consumer spending, and the inventory build-up already discussed.

Here are the key points:

  • US real GDP: Grew at an annualised rate of 3.2%, stronger than expected.
  • Consumer spending: Growth slowed to just 1.2%
  • Business investment: Up by +2.7%, thanks to spending on intellectual property.
  • Residential construction: Fell by 2.8%, the fifth decline in a row.
  • Government investment: Up by 2.4%, due to higher spending by states and local governments
  • Net trade: Added 1% point to the growth rate, due to rising exports and falling imports.
  • Inventories: stockpiling added 0.65% points to the growth rate

Gregory Daco of Oxford Economics sums it up:

The New York Times’s Ben Casselman has dug into the GDP report, to show how US consumer demand is slowing (even as the headline growth rate picks up)

A fall in imports has also boosted US growth - perhaps a sign that the Trump trade war is dampening demand for overseas goods.

Here’s an excellent chart showing how net trade boosted US GDP:

Some of the initial excitement is fading, as analysts dig into the US growth report.

The headline number is certainly stronger than expected....but there’s concern that inventory-building contributed to growth.

That’s a problem, because companies typically run those inventories down again, which hits growth.

Wall Street is cheering these growth figures, as investors and analysts reassess the state of the US economy.

America’s habit of using annualised growth rates can be confusing for the rest of us.

But a 3.2% annualised growth rate simply means the US grew by 0.8% in the first quarter.

That’s likely to be rather better than international rivals (we don’t have UK or eurozone growth figures for Q1 yet).

Updated

More key points from the US GDP report:

America’s growth in the last quarter was driven by a pick-up in trade, and a swelling in company inventories.

The Commerce Department also reports that government investment also rise, which also helped to push growth up to an annual rate of 3.2%.

However, consumers and companies seem to have throttled back.

Consumer spending growth slowed to 1.2%, from 2.5% in Q4 2018, while business spending on equipment only grew by 0.2% - the weakest growth since autumn 2016.

US growth smashes forecasts

NEWSFLASH: America’s economic growth accelerated sharply in the first quarter of this year.

GDP expanded at an annual rate of 3.2% in January-March -- up from an annual rate of 2.2% in the final three months of 2018.

That’s a much stronger result than the 2.2% which economists had expected. A good sign for the global economy?

More to follow...

Just in: Oil giant Exxon has missed Wall Street expectations.

The company has reported net income of $2.35bn, or 55 cents a share, for the last quarter -- sharply down on $4.650bn, or $1.09 a share, a year ago.

Revenue also slid, down to $63.6 billion from $68.2 billion.

That’s knocked confidence in the energy sector, and could send the New York stock exchange into the red when trading begins in around 80 minute’s time.

Nearly time for US GDP!

The New York City’s midtown Manhattan skyline
The New York City’s midtown Manhattan skyline Photograph: Johannes Eisele/AFP/Getty Images

Investors on both sides of the Atlantic, and beyond, are itching to discover how well, or badly, the US economy performed in the last quarter.

There’s not actually THAT much tension, to be honest -- no-one expects America to be sliding towards a recession. Equally, a blow-out GDP report seems unlikely, given the headwinds from the trade dispute with China and the weakness in the Eurozone.

But obviously, the state of the world’s largest economy is always interesting -- what will it say about Donald Trump’s handling of the economic levers after more than two years in the White House?

Today’s growth report will also influence monetary policy - a weak performance raises the chance of US interest rates being cut rather than raised in the coming months. That will affect the value of the dollar, and thus influence every other currency across the globe.

Analysts are expecting annualised growth of around 2.2% - anything wide of that rate could move the markets.

Just 30 minutes to go....

The 22 Debenhams store closures announced this morning put 1,200 jobs at risk.

But the full total will be even higher, as the firm is aiming to shut 50 stores! Here’s the latest news:

Andy Bruce of Reuters has captured the latest signs of Brexit stockpiling (as discussed here)

As the lunchtime gong rings across the City, the markets remain subdued ahead of the US GDP report.

The FTSE 100 is lagging behind the rest of Europe, down 14 points (0.2%). Royal Bank of Scotland (-4.5%), Glencore (-3.3%) and Just Eat (-3.2%) are the top fallers, for reasons already discussed....

Otherwise the Stoxx 600 index of top European shares is up just 0.1%, with Germany’s DAX flat and the French CAC up 0.15%.

Back in the markets, mining giant Glencore is under pressure after revealing it is under investigation over potential ‘corrupt practices’.

It’s not clear exactly what America’s Commodity Futures Trading Commission suspects Glencore of doing, beyond violating parts of the Commodity Exchange Act.

But the investigation is closely linked to an existing probe by the Department of Justice, into whether Glencore bribed foreign officials to win contracts.

Glencore shares are down 3.5% this morning following this extra headache, which could potentially lead to additional fines (although that this stage, who knows?...)

Here’s Howard Archer of the EY Item Club on the surprise pick-up in UK mortgage lending last month:

  • UK Finance somewhat surprisingly reported that mortgage approvals for house purchases rose to a 9-month high of 39,980 in March from 39,207 in February; this took them to the top of the 38,000-40,000 range that has largely held since the beginning of 2018.
  • The March mortgage approvals data look pretty resilient given recent heightened Brexit uncertainties. It may well be that housing market activity has gained some support from recent improved consumer purchasing power and robust employment growth.
  • Nevertheless, conditions still look pretty challenging for the housing market. Despite recently improved real earnings growth, house prices are still relatively expensive relative to incomes, while latest surveys largely point to consumer caution over making major purchases. The overall performance of the housing market is being dragged down by weakness in London and parts of the South East
  • It is possible that the avoidance of a “no deal” Brexit at the end of March could provide a modest boost to the housing market through easing some of the immediate uncertainty and concerns
  • However, we suspect it is more probable that with Brexit most likely being delayed until 31 October, prolonged uncertainty will weigh down on the economy and hamper housing market activity. Consequently, we suspect house prices will rise only 1% over the year and would not be at all surprised if they stagnate.

Updated

UK warehouses are groaning after factory bosses stockpiled at a record rate in the last three months.

So says the CBI, whose latest survey of UK industry shows that Brexit uncertainty has had a big impact this year.

The report says:

The three months to April saw an unprecedented acceleration in the growth of stocks held by the manufacturing sector....

Stocks of raw materials (+39%), work in progress (+21%), and finished goods (+25%) all grew at their fastest respective paces on record (since 1958 for raw materials and finished goods, and since 1977 for work in progress).

Manufacturers also reported a modest pick-up in output in the last three months, while business optimism continues to fall.

Ride-hailing company Uber has its critics (from workers who demand proper benefits to authorities who fear it is increasing congestion).

But you can’t accuse it of lacking ambition; the firm is now aiming to be the biggest tech flotation since Facebook.....

Getting back to Royal Bank of Scotland’s latest results.... Russ Mould of AJ Bell reckons investors are disappointed that its net interest margin has fallen again.

This is effectively the difference between the profit RBS makes on its loans, and the interest it pays to its own lenders (ie people who trust it with their savings).

With interest rates so low, these margins are being squeezed, he explains:

RBS is getting help here from central bank policies as low interest rates and Quantitative Easing keep borrowing costs low for consumers and corporations and make it easier for them to services their debts. But just as ZIRP (zero interest rate policies) and QE give with one hand, they are taking away with another, because the flat yield curve means banks are finding it hard to make a margin when they borrow money in the short-term and lend it out over the long term.

“RBS’ net interest margin fell again and this weighed on profits once more. Nor does this situation look likely to change, given competition and central banks’ policy U-turn this year, with a slew of monetary authorities seemingly putting interest rate increases on hold until at least 2020, including the Bank of England.

Debenhams reveals 22 stores to close

Debenhams on Oxford Street.

Newsflash: stricken retail chain Debenhams has revealed the first 22 stores which will close following its plunge into administration.

The closures will hit high streets across the country, from Kirkcaldy in Scotland to Folkestone on the English south coast, via Birmingham, London’s Wandsworth, Southport and Slough.

Here’s the list:

  • Altrincham
  • Ashford
  • Birmingham Fort
  • Canterbury
  • Chatham
  • Eastbourne
  • Folkestone
  • Great Yarmouth
  • Guildford
  • Kirkcaldy
  • Orpington
  • Slough
  • Southport
  • Southsea
  • Staines
  • Stockton
  • Walton
  • Wandsworth
  • Welwyn Garden City
  • Wimbledon
  • Witney
  • Wolverhampton

And here’s Zoe Woods’ news story on what it means for shoppers, and more than a thousand staff:

Some snap reaction to the rise in UK mortgage approvals:

UK mortgage approvals jump

Newsflash: The number of new mortgages approved in the UK has hit a nine-month high.

UK Finance, which represents British lenders, reports that 39,980 loans for house purchases were approved in March.

That’s up from 39,207 in February, and 37,773 a year earlier.

They also report that consumer credit growth picked up in March, to an annual rate of 4.1% up from 3.5% in February. That’s the fastest gain since June 2018.

That doesn’t completely square with Royal Bank of Scotland’s warning today that Brexit uncertainty is hitting demand.....

Updated

Disappointing factory output data from Japan overnight is fuelling concerns over the global economy.

Industrial production fell by 4.6% year-on-year in March, the steepest decline since May 2015 (and the second monthly fall in a row).

Carmakers, machinery producers and metal fabricators all contributed to the fall.

Economist had expected a smaller annual decline, of around 3.8%.

Output fell by 0.9% month-on-month, also worse than expected.

Given the scale of Japan’s manufacturing sector, it’s not a great sign....

Daimler isn’t the only carmaker struggling right now -- Volvo and PSA have also posted falling profits in the last quarter.

Here’s the FT’s take:

Daimler has reported a slump in first quarter earnings, as the German company joins other global carmakers plagued by falling sales in China and flat markets in the Europe and the US.

The Stuttgart-based parent of Mercedes-Benz said earnings before interest and tax fell 16 per cent to €2.8bn from €3.3bn a year earlier. The result was ahead of an analyst forecast, provided by Refinitiv, of €2.6bn.

Revenue in the quarter eased slightly to €39.7bn from €39.8bn the same period a year earlier, and was higher that forecasts of €39.14bn. Net income fell 9 per cent to €2.1bn but also beat analysts’ estimates of €1.9bn.

RBS and Just Eat have helped to pull the FTSE 100 down this morning.

The blue-chip index has shed 18 points, or 0.25%, in a fairly subdued session so far.

The French and German markets are both flat, while Italy’s FTSE MIB is down 0.3%

Just Eat food delivery company.

Online takeaway firm Just Eat is also propping up the FTSE fallers this morning, after reporting slower growth in the UK.

UK takings only rose by 7% in the last quarter, down from 17% during 2018.

Just East blames several factors, including “unseasonably warm weather in February; and Easter falling entirely in Q2 this year.”

They’ve got a point about Easter. But does hot weather really deter people from ordering a kebab?!

Just Eat may also be suffering some indigestion after gobbling up rival HungryHouse at the end of 2017.

Outside the UK, orders surged by 40% to 29.5 million, helping Just Eat to pledge that trading is still on track. Shares are down 3% this morning, though.

Updated

RBS shares fall after Brexit warning

Shares in Royal Bank of Scotland have fallen over 5% at the start of trading, after warning that Brexit uncertainty is hurting demand.

Despite beating forecasts this morning with profits of £707m in the last quarter (down from £808m) RBS is the worst-performing FTSE 100 stock, down 11.3p at 238.5p.

Investors may be concerned that the political crisis in Westminster is damaging confidence, after RBS told them that:

While we retain the outlook guidance we provided in the 2018 Annual Results document, we recognise that the ongoing impact of Brexit uncertainty on the economy, and associated delay in business borrowing decisions, is likely to make income growth more challenging in the near term.

Daimler hit by falling sales and profits

Dieter Zetsche, chairman of Daimler AG
Dieter Zetsche, chairman of Daimler AG Photograph: Greg Baker/AFP/Getty Images

German carmaker Daimler has joined the ranks of auto firms suffering from weak demand in China, and a lacklustre global economy.

Daimler has reported that pre-tax earnings shrank 16% last year, from €3.3bn to €2.8bn. It’s been hit by a double-whammy of rising raw materials costs and weaker demand.

Total sales fell by 4% in the last quarter, with its Mercedes-Benz division suffering a 7% decline. Crucially, sales fell by 3% in China, a crucial markets for the company.

Daimler Chief Executive Officer Dieter Zetsche warned that conditions are tough:

“Achieving the financial targets for 2019 has not become easier since the first quarter.

“We now have to work hard to achieve our targets for 2019.

Updated

The agenda: US GDP in focus

Donald Trump .
Donald Trump . Photograph: REX/Shutterstock

Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Donald Trump likes to boast about creating one of the greatest economies in America’s history. Today we discover how the US is actually performing on his watch.

New GDP figures for the first quarter of 2019 are expected to show moderate growth, at an annual rate of around 2.3% (or almost 0.6% on a pure quarter/quarter basis).

That would be fractionally higher than in Q4 2018, where growth was revised down last month, and rather short of Trump’s goal of 3% growth.

Growth could have been held back by the president’s belligerent trade policies, and by the Federal government shutdown at the end of last year. On the other hand, the sugar rush from Trump’s tax cuts may not have totally faded, supporting consumer spending.

The figures come out at 1.30pm BST, so markets may be quiet in the meantime.

America’s tech companies are certainly doing well. Last night Amazon reported that profits have doubled in the last quarter to $3.6bn, hours after Microsoft became the third US company valued at over $1tn following its own strong results.

But as today’s GDP report will show, there’s more to America than Silicon Valley....

Also coming up:

Royal Bank of Scotland is reporting results, a day after announcing the departure of CEO Ross McEwan.

It has posted a net profit of £707m - ahead of forecasts, but down on last year’s £808m. The bank also warns, though, that Brexit is clouding business.

UK Finance will report how many new mortgages were taken out in March. But the City may be wary after last month, when the industry body initially said demand had hit a five-year low, before discovering a blunder in the numbers.

Presumably today’s figures have been checked very carefully....

The agenda

  • 9.30am BST: UK Finance mortgage approvals figures for March
  • 1.30pm BST: US GDP for Q1 2019

Updated

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