A second interest rate hike may be near, advised New York Fed President Bill Dudley on Thursday. “If I’m convinced that my own forecast is on track, then I think a tightening in the summer, the June-July time frame, is a reasonable expectation.” The release of Fed minutes from the last policy meeting fall in line with that thinking. So, too, does the April update on real (inflation-adjusted) base money supply (M0), which contracted in year-over-year terms in April, marking the third decline in the past four months.
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● Fed’s Dudley points to interest rate hike in June or July | MarketWatch
● Jobless claims fall back to earth in mid-May | MarketWatch
● US Leading Economic Index Rises More Than Expected In April | RTT
● Philly Fed Mfg Index Unexpectedly Fell In May | RTT
● Chicago Fed Index: US Economic Growth Picked Up in April | Chicago Fed
● Bloomberg Consumer Comfort Index rises in mid-May | Seeking Alpha

Economic growth in the US eased in April to a four-month low, according to this morning’s update of the three-month average of the Chicago Fed National Activity Index (CFNAI-MA3). The reading for last month dipped to -0.22, the lowest since last December’s -0.28 reading.
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The bear-market bias that’s been lurking for the US stock market since last autumn remains intact, according to several econometric applications. Although equities overall continue to trade near all-time highs, the mild downward slope in pricing in recent months suggests that the market’s capacity to rally is wearing thin. What would kill the bear-market threat? A convincing run of strong economic reports. Granted, the macro trend isn’t terrible, as outlined in yesterday’s US economic profile. But the numbers aren’t particularly encouraging either. The net result: the market’s in a state of limbo, waiting for a convincing signal, for good or ill. But as long as the incoming macro figures are mixed, as they have been this year, the bear-market bias for equities will roll on. After a powerful and long-running bull market for 2009-2015?, the crowd needs a higher level of convincing to keep the party going at this late date.
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● Fed minutes signal rate hike firmly on the table for June | Reuters
● Business Inflation Expectations Rise Slightly to 1.9% | Atlanta Fed
● Despite lowest rates in a year, mortgage appls down 1.6% last week | CNBC
● Study Projects TPP Will Provide Modest Gains for US Economy | WSJ
● US ISM Survey Chiefs: Hoping For Better Months Rest of Year | MNI

Economic growth has been winding lower lately and the deceleration trend is on track to continue in April, based on The Capital Spectator’s analysis of the three-month average of the Chicago Fed’s National Activity Index (CFNAI-MA3). Tomorrow’s report for the first month of the second quarter is expected to show that the Fed bank’s business cycle benchmark will tick lower. The Capital Spectator’s average forecast of CFNAI-MA3 by way of several econometric estimates calls for a mild decline to -0.25, which is slightly below the -0.18 reading for March. The -0.25 projection is still well above the tipping point that marks the start of recessions, but the negative print continues to point to below-trend growth for the US.
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US economic growth remains sluggish, hinting at the possibility that a new recession may be near. But the numbers don’t align with a pessimistic intuition. The probability is extremely low that April marked the start of an NBER-defined downturn, based on published reports to date. Projecting a broad set of indicators into the near-term future suggests that the US will continue to sidestep a macro slump. Yes, the outlook could deteriorate if the incoming numbers stumble. But for the moment, recession risk remains low.
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● US home construction rebounds in April | MarketWatch
● US Industrial Output Up in April On Higher Utility Demand | CFO
● Inflation in US rises in April at fastest rate in 3 years | MarketWatch
● Strong US data bolsters second-quarter growth prospects | Reuters
● GDPNow Q2 GDP estimate for US ticks down to +2.5% | Atlanta Fed
● Redbook: US retail sales +0.5% YoY midway through May | TradingEcon
● Fed officials say several rate hikes are possible in 2016 | Reuters
● Rate Hike Fear In US Drags Down Stocks | Fox Business

US housing starts and industrial activity posted solid increases in April, rising by stronger-than-expected rates last month. But the upbeat news is clouded by negative trends for the year-over-year data. In the housing sector, the change in tone on the downside is conspicuous—for the first time in 13 months, new residential construction and newly issued building permits fell relative to their respective year-earlier levels. Meanwhile, industrial output rebounded sharply in April, rising by a better-than-projected 0.7%. But the improvement wasn’t enough to reverse the red ink in the annual comparison. As a result, US industrial activity contracted last month in year-over-year terms–as it’s been doing since last September.
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The spread between long and short Treasury yields has been narrowing lately, a change that some analysts see as a warning sign for US economic growth. The current numbers overall suggest that that the macro trend is sliding into the business-cycle ditch, but there’s still plenty of concern about painfully slow growth. How slow can it go before tipping into a formal recession? No one really knows, but the flatter yield curve these days is attracting attention in the wake of wobbly equity prices and mixed economic news.
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