Economic Recovery Hits a Soft Spot

Recent economic prints have shown a new wave of skepticism in the domestic economy, as consumers face the reality of reduced paychecks due the increase in payroll taxes in January. Friday’s retail sales report showed that consumers cut spending in food and beverage stores and personal care establishments. Cash register sales in March fell by 0.4%, and March sales in electronics and department stores fell more than 1% from the prior month. Moreover, downward revisions to January and February numbers show that the positive start to the new year may not have been so resilient after all. There are also growing signs that mortgage refinancing, which has benefitted Americans in recent months, is slowing. J.P. Morgan Chase and Wells Fargo each reported declines in mortgage banking income in their first quarter earnings releases on Friday. Despite these headwinds, the housing industry continues to be a bright spot in the US economy. Housing-related spending increased in March, including a 0.9% rise in furniture and 0.1% rise in building materials and garden supplies. Just as the domestic economy seems to have stuttered recently, the global economy continues to face below-normal levels of economic activity and confidence, as evidenced by recent data from TIGER (Tracking Indexes for The Global Economic Recovery). A slowdown in emerging economies is expected to continue as they feel the pressure from a weak external environment. In the Eurozone periphery, indicators of real economic activity in Ireland, Portugal, Italy and Spain remain well below their historical averages. Christine Lagarde, the International Monetary Fund managing director, may have said it best, stating, “we are seeing a “three-speed” global economy”; some are doing well, some are putting the pieces back together, and others are in trouble.