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Wells Fargo: Soft Q1 To Improve In 2015
Aspire, Investments | 25 May 2015
By: Lim Si Jie
Articles (169) Profile

Weekly economic data had been showing signs of improvement in the US economy until recently when a string of mixed data was released and wavered investor confidence about the bull market.

The biggest contributing factor was its March’s Non-Farm Payroll (NFP) employment change of only 126,000, almost 50 percent less than forecasted. Is the US’s Quantitative Easing (QE) stimulation and low interest rate environment slowly losing its intended effect?

Housing Outlook

Source: Wells Fargo

It was reported in Wells Fargo’s first quarter economic insight that existing home sales rose while new home sales declined. On the other hand, mortgage applications for home purchases increased by 15.6 percent over the past year.

Additionally, pending home sales have climbed over the past two months, pointing towards a possibility of sales volume increasing in the following months.

As the US market enters spring and home buying season, further improvement in the housing market is expected. As fundamentals continue to turn around, the outlook for US housing remains on course for modest improvement in 2015.

Consumer Spending

Wells Fargo noted that there was a sharp decline in durable goods orders in February but managed to get a robust 4.0 point rise in March. Core capital goods shipments, which serve as a good proxy for equipment spending within Gross Domestic Product (GDP), fell 0.4 percent.

The more forward-looking core capital goods orders fell 0.5 percent for the month, suggesting that some of the softness in equipment spending may persist beyond Q1.

Source: Wells Fargo

While data from the Monthly Treasury Statement showed that federal government spending will not be as large of a drag as in Q1, the weaker-than-expected retail sales report prompted Wells Fargo to downplay real consumer spending.

In addition, the industrial production report and durable goods data continues to reinforce Wells Fargo’s call for slower growth in business investment.

GDP Outlook

Source: Wells Fargo

The biggest change in its US GDP outlook is in the second quarter, which Wells Fargo has “revised to 2.7 percent based on forecasts of softer consumer spending and a greater drag from inventories in Q2.”

Despite three straight declines in monthly retail sales, Wells Fargo expects the lost spending to recover in Q2 and the remainder of 2015. Wells Fargo believes that net exports will continue to be a drag on headline growth as the dollar continues its trend of upward appreciation.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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