Manufacturing output in the US contracted for the second straight month in March, according to this morning’s update from the Federal Reserve. The slide weighed on the broader measure of industrial production, which slumped a hefty 0.6% last month. The decline pushed the year-over-year trend for industrial activity deeper into the red. The news raises doubts about the nascent signs of a manufacturing turnaround via the sentiment data.
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Scott Sumner warns that predicting the next recession is a mug’s game. The dismal record on forecasting certainly offers support. “Whenever I hear that someone has accurately predicted a recession, my evaluation of that person declines,” writes the economist at the Mercatus Center at George Mason University. “Economists should not be trying to predict recessions; the point is to prevent them.” Success with the latter may be even more challenging than the former, but that’s an issue for another day. Meantime, Sumner notes that “recession predictions have a corrosive effect on economics as a science.” Why? Because “these predictions lead non-economists to believe that economists should predict recessions, and give undeserved reputational points to lucky permabears.”
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● US Core Consumer Prices in Mar Cool in Sign Pickup Transitory | Bloomberg
● US Jobless Claims Decline as Labor Market Remains Hearty | WSJ
● Consumer Comfort Index in US Rose For First Time In A Month | Bloomberg
● Most Americans in 15 Years Say Their Tax Bill Is Too High | Gallup
● China Growth Slows Slightly In Q1 Amid Signs Of Stabilization | RTT
● Japan earthquake kills nine; more aftershocks expected | CNN

This is as good as it gets… at least by the standard of jobless claims. New filings for unemployment benefits dropped 13,000 last week to a seasonally adjusted 253,000—the lowest since the Watergate scandal was consuming the Nixon administration. Taken at face value, today’s numbers provide cover for dismissing yesterday’s surprise decline in retail spending in March as noise.
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The case for expecting a small-cap equity premium looks shaky. Can we rescue the strategy by focusing on small-cap value stocks? A cautious “yes” has merit, or so it appears after crunching the numbers on the relevant Russell indexes.
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● US Retail sales fall in March to end weak Q1 | MarketWatch
● US business inventories fall slightly in Mar, sales weaken further | Reuters
● Fed Beige Book: Strong Job Market Delivers Higher Wages | WSJ
● GDPNow growth forecast for Q1 ticks up to still-weak +0.3% | Atlanta Fed
● ‘GDPNow’ Got You Down? Meet the NY Fed’s New ‘Nowcast’ | Barron’s
● Just Released: Introducing the FRBNY Nowcast | NY Fed
● Eurozone March Inflation Revised Up To Zero | RTT

Consumer spending in the retail sector fell 0.3% in March, well below expectations for a modest increase, the US Census Bureau reports. The news is just one data point and so all the obvious caveats apply. Nonetheless, taking the numbers du jour at face value sends a dark message, in part because the reversal in sales last month took a substantial bite out of the year-over-year trend.
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Yesterday’s post focused on the discouraging record for value investing over the last decade, but history looks even worse for the so-called small-cap premium in the US stock market. Yes, there have been periods when small cap shines relative to large caps, but the strategy has been a loser as a buy-and-hold proposition since 1980, based on Russell indexes. Excluding the “junk” or focusing on the “value” opportunities in the small-cap realm offers possible solutions, but the original concept using the Russell benchmarks is battered and bruised.
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● Small-business sentiment falls to 2-year low in March | MarketWatch
● U.S. Import Prices Rose 0.2% in March Amid Signs of Inflation | WSJ
● Redbook: US same-store sales +1.1% in Apr but off 2.8% mtd | Econoday.com
● The IMF downgrades global growth again | The Economist
● China’s jump in exports soothes growth fears, boosts markets | Reuters
● Eurozone Industrial Output Falls In Feb After Strong Jan | RTT
● Rise of Institutional Investors Raises Questions of Collusion | NY Times

US retail sales are expected to rebound in tomorrow’s March report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The average prediction points to a 0.3% increase vs. the the previous month’s spending total. A gain in consumption for March would mark the first monthly rise so far this year.
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