Introduction

Concerns over a first-quarter global slowdown proved in the end to be overstated but early indications on April are no better than mixed at the very best. Whether from the US or China, good news in the latest retail sales and industrial production reports are as hard to find as special explanations are abundant. A rise in Australian unemployment gave a jolt to the Australian dollar and may be resetting expectations for easier rate policy while jumps in German consumer prices and US inflation expectations point to the opposite, that is tighter rate policy. As data for April come in, they will set a base against which the unfolding effects of higher US-Chinese tarffis can be compared.

The Economy

The second quarter got off to a stumbling start in the US, pulled down by an unexpectedly soft retail sales report for April where the headline was as weak as the details. Retail sales slowed 7 tenths in the month to 3.1 percent year-on-year growth. On a monthly basis readings were  slightly negative to flat including no change for the control group, a component used in the calculation of GDP and which points squarely to early second-quarter deceleration for US consumer spending, spending that had already decelerated sharply during the first quarter.

A monthly 1.1 percent decline in auto sales (signaled by the prior release of unit sales at manufacturers) was no surprise and neither was a 1.8 percent jump at gasoline stations, signaled here by the price of gas. The big surprise was a 1.3 percent drop at electronics & appliance stores that followed a 4.3 percent tumble in March. Weakness here hints at lower prices for consumer electronics and also lower spending on home improvements. Furniture sales also hint at trouble for residential investment, coming in unchanged following March's 3.1 percent decline, as did sales of building materials which fell 1.9 percent in April.

Total retail sales in March were revised higher to a yet larger 1.7 percentage point jump in the year-on-year rate to 3.8 percent which was a positive for the first quarter but not the second quarter. The choppy results from March to April are very likely the result of this year's April shift from early April last year to late April this year, a shift of consequence that jumbles the calendar and seasonal adjustments. There are plenty of warning signs in this report but taking March and April together does offer some comfort, pointing to a more steady and perhaps moderate rate of consumer spending.

Showing similar deceleration in April were retail sales in China which slowed to 7.2 percent year-on-year growth from 8.7 percent in March and which also fell well short of expectations. April marked the weakest year-on-year growth since May 2003. But like the US, calendar effects in China may have exaggerated the slowing as officials attributed the weakness to two fewer holidays in April compared to April last year. Excluding this, officials estimated that retail sales would have matched March at 8.7 percent growth. Nonetheless, it's important to note that economists took calendar effects into consideration in their forecasts.

Special factors aside, the decline in headline retail sales growth in April was broad-based, with weaker growth posted in 10 of the 13 categories. Sales of communication equipment grew 2.1 percent on the year, down from growth of 13.8 percent previously, while year-on-year growth in sales of household non-durables and home appliances fell from 16.6 percent to 12.6 percent and from 15.2 percent to 3.2 percent respectively. Auto sales also fell again in April, albeit to a lesser extent than in March, while sales of cigarettes, wine, clothing and cosmetics all slowed.

But it wasn't just the consumer that disappointed in April, as the industrial economies of both the US and China also slowed. Like retail sales, the headline 0.5 percent monthly decline for US industrial production in April was not masking strength underneath. The year-on-year rate as tracked in the graph fell from 2.2 percent in March to 0.9 percent and the weakest result in more than two years. Also falling a monthly 0.5 percent was production at manufacturers which was even more unexpected than the headline decline. Motor vehicles and parts, where consumer sales in the US have been mostly soft this year, fell 2.6 percent in April for a second monthly decline and year-over-year contraction of 4.4 percent. Business equipment fell 2.1 percent in the month for yearly growth of only 0.1 percent which doesn't point to acceleration for business investment. Consumer goods also fell while construction supplies were weak for a second straight report and which doesn't point to strength for construction in general. Selected hi tech was a positive for April, up 0.6 percent with annual growth here at 3.2 percent. Also positive was a monthly 1.6 percent jump in mining volumes that followed, however, three straight declines. Output at utilities fell 3.5 percent in April with this yearly rate of minus 4.7 percent also pointing to general industrial weakness.

However tight the US labor market may be, capacity does not appear to be tight in the industrial sector as utilization fell 6 tenths in April to a much lower-than-expected 77.9 percent. This report doesn't breakdown production of goods aimed for the domestic market and those for the foreign market but it will nevertheless offer a baseline for the overall effects on goods production of increased US-China tariffs. Going into those tariffs, the manufacturing sector, which first began to slow late last year, appeared to be flat at best.

Outside of an unusual spike in March that was tied to a tax change, Chinese industrial production has also been trending lower, at 5.4 percent year-on-year growth in April which was down from 8.5 percent in March and below the consensus forecast for 6.3 percent. On the month, industrial production rose 0.37 percent after increasing 0.97 percent previously. Officials attributed the slowdown to the impact of a cut in value-added tax rates at the start of April. This, they noted, encouraged many firms to build inventories of input materials and boost output in March before returning production to more normal levels in April.

Quirks aside, the decline in headline growth was largely driven by a drop in year-on-year growth in manufacturing output from 9.0 percent to 5.3 percent. Auto production fell 15.8 percent on the year in April after falling 2.6 percent in March, while textiles, chemicals, general equipment, and electric machinery also recorded weaker growth. Year-on-growth in mining output also slowed from 4.6 percent to 2.9 percent, offset by stronger utilities output, up 9.5 percent on the year after increasing 7.7 percent previously.

April industrial production for the Eurozone won't be posted until next month but March's data were released during the week, and once again lack of strength is the theme. Goods production (ex-construction) slid from no year-on-year growth in March to minus 0.6 percent contraction in April. On a monthly basis, production fell 0.3 percent for the fifth decrease in the last six months. The monthly drop was attributable to non-durable consumer goods and energy where output contracted 1.0 percent and 0.3 percent respectively. Elsewhere, the news was better with capital goods advancing 0.4 percent and consumer durables 0.7 percent. Regionally, the monthly headline change was supported by a 0.4 percent rise in Germany but France (minus 1.0 percent), Italy (minus 0.9 percent) and Spain (minus 1.2 percent) all subtracted. Even with March's weakness, industrial production was 0.8 percent above what was a very weak fourth quarter and confirms a positive contribution from the sector to first quarter real GDP. Yet the apparently decent quarterly performance masks a deteriorating monthly profile that leaves only a soft platform for the second quarter. With manufacturing orders still struggling to keep their head above water, second-quarter Eurozone goods output is unlikely to impress.

However subdued industrial production has been and however uneven retail sales are beginning to look, employment data in the major economies have been very strong and very steady, which made a rise in Australia's unemployment rate stick out and which gave a jolt to the Australian financial markets at mid-week. Australia's labour market did see an increase of 28,400 in the number of employed persons in April, up slightly from 27,700 in March, but the unemployment rate rose from 5.0 percent in March to 5.2 percent in April and now stands 3 tenths above February's 8-year low at 4.9 percent.

But much of the report was positive especially the highest participation rate, at 65.8 percent, of the last 10 years. The increase in headline employment in April was driven by part-time employment, up 34,700 on the month after falling 21,500 previously. This was partly offset by a fall in full-time employment of 6,300 after a March increase of 49,200. The total number of hours worked increased 0.1 percent on the month in April after increasing 1.1 percent in March. Over the last 12 months, full-time employment has increased by 248,100 persons, while part-time employment has increased by 74,800 persons. Yet despite overall strength, the quick rise in the unemployment rate points to less wage pressure which the Reserve Bank of Australia has been counting on to meet its inflation target. April's report, on that score, could well pull forward an Australian rate cut.

Employment data were also posted in France and the UK and here the results were also mixed. Joblessness in metropolitan France fell 19,000 in the first quarter following a 100,000 drop in the fourth quarter. The first quarter decline put the number of people out of work at 2.441 million, its lowest reading since the first quarter of 2009, and the unemployment rate at 8.4 percent, a tick down on the previous period. Including overseas territories, joblessness declined 21,000 to 2.601 million, also reducing the rate by 0.1 percentage point to 8.7 percent. The improvement in the metropolitan area was attributable to women for whom the jobless rate eased from 8.5 percent to 8.4 percent. Among men, the rate was only unchanged at 8.4 percent. Unemployment has been on a downward trend since the middle of 2015, yet the tick lower in the first quarter was one of the smallest during this period. France's rate remains above the Eurozone average (7.7 percent in March) and is a major issue for government policy.

Also mixed was the latest employment data out of the UK which, however, was headlined by a 1 tenth downtick in the ILO unemployment rate to 3.8 percent – a level not seen since 1974 and a reminder that the previously released US unemployment rate of 3.6 percent was the lowest since 1969. The ILO statistics found the number of people out of work falling a further 65,000 or 4.8 percent in the first quarter. Over the same period, employment advanced another solid 99,000 (of which full-time jobs 75,000) to leave the employment rate at a record equaling 76.1 percent. There was also a 0.2 hour rise in the average workweek to 32.2 hours. Even so, the outlook based on job openings deteriorated for the third month running as vacancies in the three months to April declined 16,000 to 846,000, their lowest mark since July-September last year. And wage growth was also surprisingly subdued. The annual rate for last quarter was 3.2 percent, down 0.3 percentage points from the December-February rate and the weakest reading since the third quarter of 2018. Within this, the regular earnings rate was 3.3 percent, a tick short of last time and its second consecutive dip.

Also less than robust were first-quarter GDP results out of Germany. A provisional 0.4 percent quarterly gain in total output was the first increase since the second quarter of 2018 but only enough to nudge the annual workday adjusted expansion rate, as tracked in the graph, a tick firmer to 0.7 percent. Details were scarce but the report did indicate that private consumption had a decent quarter as did equipment investment and construction. Public sector current spending was soft but there were gains in both exports and imports. Full details of the GDP expenditure components will be released on May 23. For Germany and Europe as well, the ongoing weakness of the manufacturing sector continues to be the major hurdle in the path of respectable economic growth. In recognition of this, the government last month halved its 2019 GDP projection to just 0.5 percent, matching the prior week's updated EU Commission figure. Even a modest 1.5 percent call for next year may be misleadingly firm as it will be boosted by extra shopping days.

All the uneven performances underway in the global economy aren't actually surprising, unlike a jump last month in German consumer prices that very well may once again reflect nothing more than calendar shifts. Consumer prices in Germany were unrevised in the final look at April, at a sharp 1.0 percent and which lifted the annual inflation rate by 0.7 percentage points to 2.0 percent, its strongest reading since November last year. However, the CPI breakdown shows that Easter provided a significant boost. In particular, the cost of long-distance bus travel spiked 13.6 percent from a year ago while airline tickets gained 6.1 percent. Overall package holidays saw a sizeable 11.2 percent increase. Elsewhere, food was 0.8 percent more expensive, while energy rose 4.6 percent and restaurants and accommodation 2.5 percent. Excluding food and energy, prices advanced 0.9 percent on the month for a 1.8 percent yearly increase, up sharply from March's 1.1 percent. Given the apparent distortions, May's consumer price report out of Germany is likely to see a sizeable retracement. That said, the unusually large magnitude of April's jump could mean that it is not fully reversed. In any event, the May report will make for interesting reading.

New tariff effects have yet to appear in the economic data, except perhaps for a curious jump in the US inflation outlook. Year-ahead inflation expectations in the consumer sentiment report, as tracked in blue line of the graph, had been trending consistently lower until this month, jumping 3 tenths in May to 2.8 percent in the University of Michigan's consumer sentiment data. Five-year expectations also rose 3 tenths and now are at 2.3 percent. And after holding at 1.9 percent the last three reports, inflation expectations at the business level, as tracked by the Atlanta Fed, edged 1 tenth higher to 2.0 percent in data that are also for May. In any case, the rise in inflation expectations didn't unsettle consumer sentiment which, trade war or not, jumped unexpectedly and is suddenly standing this month at a 15-year high. Inflation expectations are watched very closely by Federal Reserve officials and the rise underway supports their view that inflation is more likely to trend higher in the months ahead than it is to stay flat or move lower. Something to remember and something that runs counter to wide expectations that the next move for the Fed, however distant, is a rate cut not a rate hike.

Markets: Trade concern centered in Asia

Chinese officials went out of their way late in the week to downplay the outlook for compromise or even the possibility of trade talks starting back up. Yet the US and European markets, after a rough Monday, stayed mostly upbeat with the Dow ending the week only 0.7 percent lower and still up a very sizable 10.4 percent year-to-date. In contrast, China's Shanghai fell 1.9 percent in the week and 2.5 percent on Friday alone. Year-to-date the Shanghai is still up 15.6 percent which is down, however, from 23.4 percent at the end of last month before the trade talks began to crumble. Germany's Dax ended 0.6 lower on Friday but still posted a 1.5 percent gain in the week that is still just more than half of the prior week's 2.8 percent decline. Year-to-date, the Dax is up a very strong 15.9 percent. The Australian market also seems a bit disconnected, up 1.0 percent on the week for the All Ordinaries but largely reflecting the stimulative effects from a drop in the Australian dollar which, at A$0.6886 on Friday, lost 1.9 percent on the week.

The bottom line

When special factors pile up to explain away weakness in economic data the risk may be greater of actual weakness than hidden strength. Even a flat global profile going into the US-China tariff hikes does not promise a robust rebound through the year. Yet curiously inflation, in the wings and mostly forgotten, may finally be coming back on stage to raise the risk of tariff-induced stagflation. That could be a story for the data to come.

**Jeremy Hawkins and Brian Jackson contributed to this article

Week of May 20 to May 24

A loaded week opens with Japanese GDP where the first-quarter consensus is looking for a return back into the negative column. Existing home sales on Tuesday will update what has been an uneven but still favorable year for US housing as will new home sales on Thursday. Japan will be back in focus on Wednesday with machine orders, which are expected to be flat, and also trade data that are expected to show a declining surplus and another contraction for exports. Inflation data are also on store with producer prices from Germany early in the week and consumer prices from the UK at mid-week and increasing pressure, especially for the latter, is expected. Japanese CPI will be posted on Thursday but here only the most marginal improvement is the call. Flash PMIs for France, Germany and the Eurozone will fill up Thursday's calendar and only fractional improvement at a still dismal 44.8 is the consensus for German manufacturing. Strength in services offsetting weakness in manufacturing is the general PMI expectation. The UK has been enjoying a run of strong data but give back and a decline is the call for April retail sales on Thursday. The week ends with a potentially unsettling result for US durable goods orders in which some forecasters are predicting very severe contraction due to Boeing 737 cancellations. Mixed in the week will be minutes on Wednesday from the May FOMC in which Jerome Powell downplayed the risk of lower inflation and minutes from the European Central Bank on Thursday.

Japan: GDP for Preliminary First Quarter (Sun 19:50 EDT; Sun 23:50 GMT; Mon 08:50 JST)

Consensus Forecast, Quarter-over-Quarter: -0.1%

Consensus Range: -0.1% to 0.4%

Consensus Forecast, Annualized: -0.2%

Consensus Range: -0.5% to 1.4%

Weakness in capital investment and private consumption are expected to pull back Japanese GDP into the negative column in the first quarter. Forecasters are looking for a 0.1 percent dip on a quarterly basis for the preliminary first-quarter report and a 0.2 percent dip annualized which would compare with fourth-quarter growth of 0.5 percent on the quarter and 1.9 percent on the year.

Germany: PPI for April (Mon 02:00 EDT; Mon 06:00 EDT; Mon 08:00 CEST)

Consensus Forecast, Month-to-Month: 0.3%

Consensus Forecast, Year-over-Year: 2.4%

After dipping a monthly 0.1 percent in March for a yearly 2.4 percent annual pace, the consensus for German producer prices in April is calling for a monthly bounce to plus 0.3 percent but no change for the yearly reading at 2.4 percent.

US: Existing Home Sales for April (Tue 10:00 EDT; Tue 02:00 GMT)

Consensus Forecast, Annualized Rate: 5.360 million

Consensus Range: 5.250 to 5.400 million

After giving back in March half of February's surge, existing home sales in April are expected to rise very sharply to a 5.360 million rate vs March's 5.210 million. Existing home sales, boosted by low mortgage rates, have been trending higher after slumping badly last year.

Japan: Merchandise Trade for April (Tue 19:50 EDT, Tue 23:50 GMT; Wed 08:50 JST)

Consensus Forecast: Y222.0

Consensus Forecast: Exports Year-over-Year: -1.5%

Consensus Forecast: Imports Year-over-Year: 4.8%

A surplus of Y222.0 billion is expected for the April merchandise trade report, vs a surplus of Y528.5 billion in March. The surplus in March came despite a 2.4 percent year-on-year fall in exports and a 1.1 percent yearly rise in imports. Exports in April are expected to continue to decline, at minus 1.5 percent, with imports expected to rise 4.8 percent.

Japan: Machine Orders for March (Tue 19:50 EDT; Tue 23:50 GMT; Wed 08:50 JST)

Consensus Forecast, Year-on-Year: 0.0%

Forecasters see no change for Japanese machine orders in March following February's 1.8 percent increase. February's gain reflected a recovery in manufacturing orders that offset a decline in non-manufacturing orders.

UK: CPI for April (Wed 04:30 EDT; Wed 08:30 GMT; Wed 09:30 BST)

Consensus Forecast, Month-to-Month: 0.7%

Consensus Forecast, Year-over-Year: 2.2%

The CPI for preliminary April in the UK is expected to rise 0.7 percent month-on-month and 2.2 percent year-on-year. This would compare with a monthly 0.2 percent increase in March and, for a third month in a row, a 1.9 percent yearly rate that was very near the Bank of England's target.

France: Business Climate Indicator for May (Thu 02:45 EDT; Thu 06:45 GMT; Thu 08:45 CEST)

Consensus Forecast: 101

Hit by weakness in goods production, the business climate indicator for manufacturing posted an unexpected decline to 101 in April and a 4-year low. For May, the consensus is unchanged at 101.

France: PMI Composite Flash for May (Thu 03:50 EDT; Thu 07:50 GMT; Thu 09:50 CEST)

Composite Consensus: 50.5

Manufacturing Consensus: 50.0

Services Consensus: 50.8

A virtually dead flat 50.1 was France's composite PMI score in April and forecasters aren't looking for only marginal movement for the May flash, at a consensus 50.5. The manufacturing PMI flash is seen at 50.0 with the services PMI flash at 50.8.

German: PMI Composite for May (Thu 03:55 EDT; Thu 07:55 GMT; Thu 09:55 CEST)

Composite Consensus: 52.1

Manufacturing Consensus: 44.8

Services Consensus: 55.4

The manufacturing PMI, which has been mired in the mid-40s range, will be the major headline from Germany's PMI flash for May, and forecasters are not showing much optimism with the consensus at 44.8. The services PMI is seen at 55.4 with the composite PMI for May expected to come in at 52.1 vs April's 52.2.

Eurozone: PMI Composite Flash for May (Thu 04:00 EDT; Thu 08:00 GMT; 10:00 CEST)

Composite Consensus: 51.7

Manufacturing Consensus: 48.0

Services Consensus: 53.0

Forecasters see the May's PMI Composite Flash for the Eurozone holding steady at 51.7 vs 51.5 and 51.6 in April and March, two of the slowest months in business activity of the last five years. The consensus for the manufacturing PMI is 48.0 with the consensus for the services PMI at 53.0.

Germany: Ifo Survey for May (Thu 04:00 EDT; Thu 08:00 GMT; Thu 10:00 CEST)

Economic Sentiment Consensus: 99.0

At 99.2, economic sentiment in April's Ifo survey remained near a 3-year low and pointed to a soft opening for Germany's second quarter, and not much strength is expected for May where the consensus is at 99.0.

UK: Retail Sales for April (Thu 04:30 EDT; Thu 08:30 GMT; Thu 09:30 BST)

Consensus Forecast, Month-to-Month: -0.6%

Retail sales in the UK proved very strong in March, up 1.1 percent monthly for a yearly 6.7 percent gain and the strongest showing in 2-1/2 years. Give back is expected for April retail sales where forecasters are looking for a 0.6 percent monthly decline.

US: New Home Sales for April (Thu 10:00 EDT, Thu 14:00 GMT)

Consensus Forecast, Annualized Rate: 678,000

Consensus Range: 647,000 to 696,000

Driven by low mortgage rates, new home sales easily beat expectations in March for the best showing in a year-and-a-half at a 697,000 rate. The consensus for April sales is understandable give back to a 678,000 rate.

Japan: Consumer Price Index for April (Thu 19:30 EDT, Thu 23:30 GMT; Fri 08:30 JST)

Consensus Forecast, Year-over-Year Ex-Food: 0.9%

Japanese consumer Inflation remained steady and subdued in March and the same is expected once again for April. Forecasters are looking for a 0.9 percent year-on-year gain for the core CPI ex-food vs March's 0.8 percent.

US: Durable Goods Orders for April (Fri 08:30 EDT; Fri 12:30 GMT)

Consensus Forecast, Month-to-Month Change: -2.0%

Consensus Range: -10.0% to -0.8%

Durable Goods Orders, Ex-Transportation

Consensus Forecast: -0.1%

Consensus Range: -0.7% to 0.3%

Core Capital Goods Orders (Nondefense Ex-Aircraft)

Consensus Forecast: 0.1%

Consensus Range: 0.0% to 0.8%

Boeing cancellations tied to the grounding of the 737 Max are the wild card in April's report with some forecasters predicting a very large headline decline. Forecasters in sum see durable goods orders falling 2.0 percent in April following a very healthy March report where total orders jumped 2.6 percent (revised from an initial 2.7 percent). A great strength of March's report was a 1.4 percent jump in core capital goods orders (revised from 1.3 percent) which, given the tough monthly comparison, are expected to rise only 0.1 percent in April. For ex-transportation orders, a 0.1 percent decrease is expected.