Expected growth in first-quarter earnings for companies in the S&P 500 index has now jumped to 50% from 39% in the prior week . . . → Read More: 83% Beat The Street; Revenues Also Top Forecasts]]> All last week we pointed to the strong earnings numbers released by U.S. corporations. The overall results are in and point to a measure that confirms our sector by sector reports.

Expected growth in first-quarter earnings for companies in the S&P 500 index has now jumped to 50% from 39% in the prior week according to Thomson Reuters.

As we reported last week many companies like Citigroup Inc. (C), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS) each reported earnings growth far above analysts’ estimates.

In this coming week the Q1 earnings season culminates with six of the 30 Dow Jones Industrial Average components and a third of the S&P 500 companies scheduled to post their operating results.

In the S&P 500 through Friday, 83% have already posted results above analysts’ expectations. In an average quarter only 61% of companies beat the street estimates.

And companies are not sacrificing revenue growth in order to improve their bottom lines. Revenue too has also bested most analyst estimates. Thomson Reuters said 69% of those companies that have reported thus far have topped their revenue views.

Q1 will now mark two quarters in a row where the S&P 500 has recorded earnings growth. It adds additional evidence that when the government reports overall GDP growth estimates next Friday, those initial measurements will register stronger than Q4.

Gap, Ross, and Target all jumped 3% or more on their March sales which easily beat analyst expectations.

More broadly, retail firms reported that collectively their March sales rose a record 9.1%, according to Thomson . . . → Read More: U.S. Consumer In Q1: Shop, Shop, Shop]]> On Thursday, retail stocks rose to 52-week highs as retailers continue a string of strong reports on a resurgent U.S. consumer.

Gap, Ross, and Target all jumped 3% or more on their March sales which easily beat analyst expectations.

More broadly, retail firms reported that collectively their March sales rose a record 9.1%, according to Thomson Reuters data.

And the growth is broad-based. From high-end retailers like Saks Inc. and Nordstrom Inc. to deep discounters like Costco and Target Corp., revenue gains of more than 10% were commonly reported.

Target, Kohls, TJX Cos., Ross Stores Inc. and Aeropostale Inc. all raised their first-quarter earnings guidance, with Target in particular saying it would beat the consensus estimates by 10 cents a share or more.

Thursday retail results continue to paint a picture that points to very strong Q1 GDP growth.

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At 9:55 AM EDT, the latest Consumer Sentiment Index will be released.  The index . . . → Read More: Today’s Economic Events]]> At 8:30 AM EDT, the GDP growth rate figure for the fourth quarter of 2009 will be released.  The consensus estimate is an increase of 5.9% in real GDP growth and an increase of 0.4% in the GDP price index.

At 9:55 AM EDT, the latest Consumer Sentiment Index will be released.  The index declined from the end of February to mid-March, and the consensus estimate is that it will gain half of a point to reach 73.0, which will still be below the level at the end of February.

Redbook also offers a month-to-month comparison which is also at . . . → Read More: Retail Sales Results Are Strongest of this Recovery Thus Far]]> On Tuesday Redbook reports indicated the strongest retail results of the recovery thus far. The results posted a plus 3.6% year-on-year same-store sales rate in the March 20 week. That rate was right in line with the ICSC-Goldman’s 3.7% rate also reported on Tuesday.

Redbook also offers a month-to-month comparison which is also at a solid plus 0.9% gain. (That’s an annualized 10.8% bump).

The report showed particular strength across women’s apparel and for lawn and garden equipment; items that sparked little to no interest with consumers a year ago.

With retail sales making up 70% of annualized GDP growth, Q1 2010 GDP results are shaping up to be even stronger than Q4 2009.

Retail sales rose last month by 0.3%, the Commerce Department said Friday. An average of economists surveyed had forecast a 0.3% decrease in February . . . → Read More: Consumer Spending Now Likely Fastest In Three Years]]> U.S. retail sales posted a surprising gain in February despite falling car demand amid trouble at auto maker Toyota MotorCorp. and fierce blizzards that crippled the East Coast for days.

Retail sales rose last month by 0.3%, the Commerce Department said Friday. An average of economists surveyed had forecast a 0.3% decrease in February sales. The Super Bowl early in the month had electronic store sales bounding higher.

“This is a pleasant surprise, especially in the light of the severe winter weather across large parts of the country last month,” said Ian Shepherdson, an analyst at High Frequency Economics.

Retail sales data are an important indicator of consumer spending and consumer spending makes up 70% of demand in the U.S. economy.

The unexpected increase moved Macroeconomic Advisers to pushed their forecast for first-quarter gross domestic product growth way up, by four-tenths to 3.1%. Other analysts agree with the strong first quarter forecast.

“Consumers are beginning to come out of their shells,” IHS Global Insight analyst Nigel Gault said. “Today’s data suggests that real consumer spending will rise about 3% in the first quarter, the fastest increase in three years.”

Inventory accumulation was estimated to have added 3.9% to economic growth last quarter. The . . . → Read More: Q4 Growth – The Best Since 2003]]> Rebuilding of depleted inventories was behind an improvement in 4Q economic growth estimates above what was previously estimated. The estimate brought estimates up to 5.9% from earlier estimate of 5.7%. Last quarter’s growth was likely the strongest since 3Q 2003.

Inventory accumulation was estimated to have added 3.9% to economic growth last quarter. The accumulation of course was necessitated by dwindling stockpiles in several previous years. There was also an upward revision to growth in real imports to 15.3%.

Price inflation remains quite tame following little to no inflation during the prior two quarters. Diminished price gains for all of last year pulled the annual increase down to 1.2% which is its weakest increase since the early 1960s.

Almost 6% annualized growth and inflation at 1%? Does it get any better? Well, all signs point to Q1 growth accelerating.

Moody’s Sovereign Misery Index

Source: FT . . . → Read More: Will Fiscal Asymmetries Threaten the Euro?]]> Earlier this day, I came across Moody’s Misery Index (link) which estimated the size of macroeconomic difficulties in European countries. In particular, European countries within and outside the Eurozone are likely to face stagnant GDP growth rates, high unemployment rates, deflationary pressures and a depressing fiscal outlook.

Moody’s Sovereign Misery Index

Source: FT Alphaville (link)

The most problematic European countries seem to be the peripheral edge of the Europen Union – Greece, Spain, Portugal, Slovenia and Italy. Greece, Portugal and Slovenia are small economies without very much effect on the European GDP dynamics. However, the size of Spain’s and Italy’s economy is large enough to be able to exacerbate significant effect on GDP dynamics within the European Union and the Eurozone.

Debt-to-GDP ratio in selected countries

Source: Market Oracle (link)

Spain topped the Moody’s Misery Index due to the highest estimated unemployment rate for 2010 and a whopping fiscal deficit. Where’s the trouble? As I wrote earlier (link), prior to the outbreak of financial crisis, Spain had a favorable fiscal outlook in 2006 and 2007 and an unfavorable current account balance . In 2007, Spain experienced a 10 percent of the GDP current account deficit largely due to net capital inflows from surplus countries such as Germany and Netherands. These net capital inflows further inflated asset prices, causing an outburst of asset bubble. In the mean time, asset price inflation escalated and real estate price index soared. Government’s remaining choice was to push for a fiscal surplus to avoid the inflationary shocks. When the bubble turned into burst, the shortage of external demand (in spite of favorable domestic consumption rate) caused the economy’s overcapacity and a deeply negative output gap. In 2008, Spain’s economy overheated and the output gap increased to historic highs (3.06 percent of potential GDP). In 2010, the estimated output gap is -2.12 percent of potential GDP. Due to weak aggregate demand – especially weak investment and external demand – asset and consumer prices are decreasing. As firms are reluctant to hire new labor, the result is high rate of unemployment, deflationary pressure and non-existent GDP growth. The macroeconomic situation in Spain pretty much reflects the general macro outlook for the entire Eurozone.

If the ECB decided to raise interest rates significantly, it would further depress an already weak investment activity. If ECB’s interest rates decreased further, there would be a serious danger of deflationary trap which dragged the Japanese economy into a decade long period of deflation rates, zero-bound interest rates and stagnant economic recovery. As European population is aging rapidly (as in Japan and other industrialized nations), the outlook for the European economic recovery is rather timid.

Rapidly rising fiscal deficit (link) and public debt is a permanent threat to the stability of the Euro. Of course, the best possible cure to decrease the debt-to-GDP ratio is higher economic growth and also higher rate of inflation which decreases the stock of public debt through higher price level. Europe’s real macroeconomic disease is not just low productivity growth and high tax burden but also very asymmetric economic policies. While the ECB sets interest rates for the entire Eurozone, Euroarea countries set independent fiscal policies. In addition, the appreciation of the euro hinders currency swaps into high-yield currencies. That could enable covered interest parity and the reinvestment of foreign currency back into Euro when its appreciation trend would reverse.

Asymmetric fiscal policies are likely to cause significant public debt concern if fiscal policies are discretionary. Prior to the emergence of economic crisis, half of the European countries ran discretionary deficit-financed fiscal policies. If European countries ran prudent fiscal policy based on low government spending and balanced budget, the asymmetric fiscal shocks weren’t a major problem at all. However, strong public sector, high government spending and the lack of rule-based fiscal policies pose a significant concern for the stability of the Euro.

What I propose, is not the harmonization of fiscal policy but a strong committment of European countries to limit the scope of discretion in fiscal policy. Each country should forge a prudent fiscal policy without high fiscal deficit. In addition, countries should set a medium-term perspective of public debt reduction. That would ease the problem of asymmetric shocks during economic downturns and enhance the prospects of European single currency. In addition, European countries should rigorously liberalize labor markets. The liberalization of the labor market would remove the unneccesary wage adjustment rigidities. When wages are rigid downward – especially during the recession – higher wages exacerbate a significant pressure on unemployment. And when unemployment rate is high, the demand for discretionary fiscal policy and deficit spending is very high as well.

Without the necessary liberalization of labor market and the pursuit of prudent fiscal policies, the future of Euro and the prospects of the Eurozone are not bright at all.

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Barely had the ink dried on a statement by European leaders supporting Greece in its struggle to finance its debts when more . . . → Read More: Europe’s Bleak Macroeconomic Outlook]]> The Economist published a very lucid analysis (link) of the recent macroeconomic instability in the Euroarea, following the outbreak of Greek debt crisis (link) and disappointing quarterly data on GDP growth (link):

Barely had the ink dried on a statement by European leaders supporting Greece in its struggle to finance its debts when more bad news emerged from the euro zone. Figures released on Friday February 12th showed that GDP in the 16-country currency zone rose by just 0.1% in the three months to the end of December compared with the previous quarter. That there was any improvement at all was largely down to France, where a burst of consumer spending lifted the economy by 0.6%. In the region’s other big countries, GDP was either flat—as in Germany—or falling, as in Italy and Spain.