- U.S. consumer sentiment expected to snap 3-month losing streak
- U.S. industrial production is expected to show another decline but manufacturing production is expected to edge higher
- April Empire manufacturing index expected to edge a bit higher into positive territory
- Prospects look good for a nearly-meaningless oil production freeze agreement this weekend
U.S. consumer sentiment expected to snap 3-month losing streak — The market is expecting today’s preliminary-April University of Michigan U.S. consumer sentiment index to show a +1.0 point increase to 92.0, more than recovering March’s -0.7 point decline to 91.0. The index posted an 8-month high of 92.6 in December but then fell for three straight months in Jan-March by a total of -1.6 points to March’s 5-month low of 91.0.
U.S. consumer sentiment so far this year has been undercut by the financial market turmoil at the beginning of the year, the dysfunctional presidential campaign, weak GDP data, and the rise in gasoline prices from the February lows. However, the Q1 dip in consumer sentiment was mild and the market is now expecting an improvement in consumer sentiment in April. Supportive factors for consumer sentiment at present include continued strong U.S. labor market data, rising wages, rising home prices, the recovery in the stock market from the early-year losses, and the fact that gasoline prices remains at historically low levels even after the recent 30-cent rise.
The U.S. economy needs to see a substantial improvement in U.S. consumer sentiment and spending starting in April if the U.S. economy is to avoid sinking into a recession. U.S. GDP appears to have faded to the +0.5% area in Q1 from the already-weak level of +1.4% in Q4. The U.S. economy in Q4 was held up solely by consumer spending since the other components of GDP were flat to negative, including business investment, net exports, government spending, and inventories. For Q1, the situation looks grim for consumer spending since the U.S. retail sales series was either unchanged or fell in all three months of Q1, indicating that consumers pulled back on spending. The markets are hoping for a rebound in consumer spending in Q2 and a decent consumer sentiment report today would be a step in the right direction.
U.S. industrial production is expected to show another decline but manufacturing production is expected to edge higher — The market is expecting today’s March industrial production report to show a decline of -0.1%, adding to Feb’s decline of -0.5%. The report is expected to be a little better for the manufacturing sector (i.e., excluding utility and mining output) with a +0.1% gain, adding to Feb’s +0.2% gain. On a year-on-year basis, U.S. industrial production was weak at -1.6% in Feb but manufacturing production showed a +1.0% y/y increase, the best report in more than a year.
There are hopes that the U.S. manufacturing sector is starting to recover somewhat after being hit hard last year by the strong dollar, weak exports, and the recessions in the energy and mining industries. The U.S. ISM manufacturing index has risen for the last three months (Jan-March) by a total of +3.8 points to post a new 8-month high of 51.8 in March. Even more impressive was the sharp +6.8 point increase in the ISM manufacturing new orders sub-index to 58.3 in March, which indicated that U.S. manufacturing executives saw a surge in new orders in March.
April Empire manufacturing index expected to edge a bit higher into positive territory — The markets are expecting today’s Apr Empire manufacturing index to show a +1.38 point increase to 2.00, building on the sharp +17.26 point increase to 0.62 seen in March. Today’s Empire index will be the first regional manufacturing data for April and will therefore provide an early peek into the U.S. manufacturing data for April. The Empire index was mired in negative territory in the latter half of 2015 and finally jumped back into positive territory in March, indicating some emerging optimism in the New York area manufacturing district.
Prospects look good for a nearly-meaningless oil production freeze agreement this weekend — Key global oil producers will meet this weekend in Doha to discuss the possibility of a broad production freeze agreement. In the big picture, a production freeze agreement is nearly meaningless since key global oil producers such as Saudi Arabia and Russia are already producing at record, or near record, levels. However, a production freeze agreement would still be a supportive factor for oil prices since it would represent at least some cooperation on trying to support oil prices. That cooperation could conceivably turn into an actual production cut at some point in the future if oil prices should plunge to new lows and producers are feeling enough pain.
The key to this weekend’s meeting will be whether Saudi Arabia, Russia, and the other oil producers will agree to a production freeze even if Iran refuses to participate. A key Saudi official recently said that Saudi Arabia would not agree to a production freeze if Iran did not participate, but that might have been simply a negotiating ploy to try to get Iran to agree to something, such as a freeze, after its production reaches pre-sanctions levels. By contrast, Russia has been more flexible by indicating that a production freeze is possible without Iran. Oil prices rallied sharply by more than +4% on Tuesday after a report by Russian Interfax news said that Saudi Arabia and Russia had already agreed on a production freeze even if Iran refuses to join.
Meanwhile, Iran has not indicated whether it will even attend this weekend’s Doha production freeze meeting. Iran’s oil minister has said that the idea of Iran freezing production is “ridiculous.” Iran’s post-sanction production has been rising, but not by as much as Iran had hoped due to various obstacles. Iran’s oil production rose by +8.4% to 3.100 million bpd in February and rose by another +3.2% in March to 3.200 million bpd. That is up by 400,000 bpd from the 2.8 million bpd level seen in late 2015 but remains far below the pre-sanction average near 3.9 million bpd.
