Will the U.S. economy slide into a recession or not?
Many economists were expecting to see a gradual economic slowdown throughout the year, culminating in a recession that could start next year. Even the Federal Reserve had put a hold on interest rate hikes earlier this year, taking a wait-and-see approach that many perceived as a signal that the growing economy was starting to lose some steam.
But Friday’s surprise in the form of a first quarter gross domestic product report indicated that real GDP grew 3.2 percent. And economists at Moody’s Analytics noted that real disposable income growth slowed to 2.4 percent from 4.3 percent. That’s also against the backdrop of a savings rate that rose to 7 percent from 6.8 percent in the fourth quarter. So, how then is the economy still growing? Other data points, like consumer confidence, will be out next week and might shed more light on which way economic grow is headed.
Trade wars: High-level talks between the U.S. and China are slated to begin April 30 in Beijing and again in Washington on May 8. But now there’s another trade front capturing the attention of the Trump Administration.
The U.S and Japan are believed to be at the start of negotiations for a trade deal of their own, two years after President Trump elected to pull out from the Trans-Pacific Partnership. The TPP was a regional, 12-nation agreement on free trade. Following the punitive tariffs levied on Japan’s steel and aluminum exports by the U.S., the two countries are expected to begin trade talks on Friday when Japanese Prime Minister Shinzo Abe lands in Washington to meet with President Trump.
First quarter: On Friday, the U.S. Bureau of Economic Analysis said first-quarter GDP grew 3.2 percent, modestly lower than the 3.8 percent growth in the middle of 2018, and higher than the 2.2 percent posted in the fourth quarter. The Conference Board on Friday said it believes the GDP surprise was helped by temporary contributions from inventories, trade and government spending. It also noted that those contributions are “unlikely to be sustained during the year.”
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Consumer confidence: The University of Michigan Consumer Sentiment Survey report on Friday showed that consumer sentiment slid in March. The Index now stands at 97.2, down from 98.4 in March. On Tuesday, The Conference Board will report on the results from its own survey on consumer confidence, as well as provide an indicator on what respondents in April’s report think about economic growth six months out.
IPO Watch: VF Corp. said Friday that its expected spinoff of its jeans business under the publicly-listed name Kontoor Brands will occur by May 31. The new company, which consists of its Lee, Wrangler and Rock & Republic brands, is projected to have annual revenues of $2.7 billion. How Kontoor develops as a freestanding corporation will be interesting to watch. When VF first disclosed the spinoff last year, executives said at the time that the new corporate structure would allow Kontoor to re-invest in itself, leaving open the possibility that it might look to mergers and acquisitions activity to fuel some growth power.
The spinoff follows on the heels of the initial public offering of Levi Strauss & Co. last month. Currently, there’s no shortage of companies looking to do their own IPO. On Friday, workplace-chat platform Slack said it is going public as well, but that it would follow the lead of Spotify. The latter went public a year ago via a direct listing of shares. Lyft and Pinterest, both recent IPOs, instead chose the more traditional IPO route favored by Wall Street.
Who’s next? IPO research firm Renaissance Capital has six firms set to head out of the gate during the week of April 29, none of which are apparel-related companies. Still to come is on-demand, car-sharing service Uber, which on Friday set the pricing for its shares at between $44 and $50. And in the back half of 2019, resale apparel and accessories firm The RealReal and fashion retail platform Revolve could also make their way to the public markets.
Earnings: Earnings season is back, kicking off a new six-to-eight-week cycle of financial reports from apparel firms and retailers. While apparel firms have different fiscal-year ending dates, most of the upcoming retailers will be posting first-quarter results. Upcoming next week will be reports from Unifi, HanesBrands and Gildan Activewear.