* The March U.S. retail sales data were on the strong side of expectations, confirming a surge as soon as the weather improved, and should give a boost to consumption estimates for the Q1 GDP report. March retail sales were up 1.1% in their biggest gain since September 2012, and ex-auto sales were +0.7%. Sales ex autos and gas were +1.0%. Also, core sales were revised higher in January-February after posting +0.8% in March, making this a very strong report, albeit only a one-month surge that tells very little about whether the pace will be sustained. In Q2, early reports are that auto and department store sales continued on the strong side.
* U.S. manufacturers' and trade inventories were estimated at an end-of-month level of $1,715.6 billion, up 0.4% from January 2014 and up 4.2% from February 2013. Sales and manufacturers' shipments was estimated at $1,311.8 billion, up 0.8% from January 2014 and were up 1.8% from February 2013.
* Cuts in federal government spending are taking a toll on one Federal Reserve district, holding back hiring and higher gains in employment growth, a Richmond Fed economist tells MNI. "We were quite a bit softer than the U.S. in terms of employment growth," said Ann Macheras, vice president of the Richmond Fed's regional economic research division. The fifth district, which covers the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia, saw employment grow 0.6% in the past year through February, but that compares with a 1.6% gain nationally in the same period, Macheras told MNI in an interview. "And there's big differences within our district," she said. Employment in the district fell 0.1% in February over the previous month, as gains made by Virginia and West Virginia were not enough to offset the losses in D.C., Maryland, North Carolina and South Carolina.
* The Congressional Budget Office reported Monday that it expects the fiscal year 2014 budget deficit to fall to $492 billion which is about $23 billion lower than its February estimate and down sharply from the $680 billion deficit in FY2013. In its updated budget and economic report for the fiscal years 2015 through 2024, the CBO sees a relatively benign deficit period ahead, but it also anticipates that annual budget deficits will begin moving upward after FY2015 and near trillion territory by FY2022. The widening deficits, according to CBO, will be driven by the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.
* While the Congressional Budget Office's most recent update of its economic and budget baseline does not offer any startling new insights into U.S. fiscal policy, it paints into even bolder relief one profound fact: the enormous impact that growing debt service costs will have on U.S. fiscal policy in the next decade - and beyond. In its report, the CBO shows annual net interest costs rising from $227 billion in fiscal year 2014 to $400 billion in FY2017 to $694 billion in FY2021 and then to $876 billion in FY2024. According to CBO, for the FY2015 to FY2019 period, the U.S. will pay $2.046 trillion in interest and for the FY2015 to FY2024 period, debt service costs will reach $5.825 trillion. For the FY2015 to FY2019 period, the CBO sees cumulative deficits of $2.930 trillion and for the FY2015 to FY2024 period, it sees cumulative deficits of $7.618 trillion. "Debt service costs have become the 'other' entitlement - and not just the 'other' entitlement but one of the largest entitlements," says Bob Bixby, executive director of the Concord Coalition.
* U.S. consumers raised their expectations for inflation, while expectations for home price growth fell in March, according to the latest New York Federal Reserve Bank's Survey of Consumer Expectations released Monday. The survey, which covered March 2014, shows consumer expectations for inflation over the next year climbed to 3.2%, up slightly from 3.1% in February. For the three year period, consumers in March expected 3.4% inflation, up from 3.2% when surveyed in February. However, consumers mostly expected smaller growth in home prices over the next year, with the median expecting a 3.8% increases in prices, compared to 4% in last month's survey.
* The U.S. Federal Reserve has a responsibility to make clear what it plans to do so that negative spillovers can be minimized, European Central Bank Governing Council member Ewald Nowotny said Monday. Speaking at a conference at the U.N., Nowotny, according to a speech text provided by the Austrian National Bank, which he heads, said that "global financial stability is a shared responsibility. The Fed should therefore clearly communicate the path of its intended policy actions to minimize negative spillovers which could undermine the policy adjustment efforts of emerging markets."
* Give or take a decimal point or two, the Bank of Canada and economist market watchers generally believe that Canada's economy will grow by 2.5% this year and next, an outlook the central bank should confirm Wednesday. Revisions will be made in a new quarterly Monetary Policy Report to estimates made in January, since both economic growth and inflation have risen by somewhat more than had been expected. But analysts see the Bank Wednesday morning holding to its neutral bias for the Canadian outlook. The BOC would want to see more months of data before shifting to rate hiking expected to start in Q1 next year, in some minds, or later in 2015 according to others.
* Risk sentiment was shaky Monday, at the start of a new week, with no compelling reason to jump into risk-friendly instruments other than perhaps the extended price action seen in recent sessions. Ten-year Treasury yields were closing at 2.6475%, up from Friday's low near 2.61% (also March 14 low yield) and down from the 2.801% high yield seen April 4, and a far cry from the 3.0%-plus yields December 31 as well as January 3, ahead of the December non-farm payroll release. Equity market and Ukraine jitters have acted to underpin U.S. Treasuries in recent sessions and drive U.S. yields and the dollar lower, traders said.
* In currencies, the euro was closing at $1.3820, in the middle of the day's range of $1.3808 to $1.3863 range. Last Friday, the pair topped out at $1.3906, before closing the week at $1.3885. Despite myriad jawboning remarks by various European Central Bank leaders, the euro is down only about 1.0% from the 2014 high of $1.3967 (seen March 3). Dollar-yen closed at Y101.82 Monday, in the middle of a Y101.42 to Y102.01 range, with the pair underpinned by the modest run-up seen since last Friday in U.S. Treasury yields.
* U.S. stocks rallied at the open, but gave back a portion of these gains into the close. The Dow Jones Industrial Average closed up 146 pts at 16,173.24, the Nasdaq Composite closed up 23 pts at 4,022.694, and the S&P closed up 15 pts at 1,830.61.
* Argentina's government this week likely will continue efforts to regain access to global financial markets as surging inflation sparks protests at home. The government has been borrowing heavily from the monetary authority to pay the national debt and finance deficit spending, including for paying increasingly hefty subsidies to cap the prices of public utilities for consumers. This has led to a surge in monetary expansion and a decline in central bank reserves.
* With Holy Week holidays descending on Latin America, Mexico's major party leadership has agreed to take a vacation with critical secondary legislation to energy, telecom, competition and political reform still pending before Congress and the current session set to close April 30. Responding to Congress' move to break for 11 days with less than three weeks to go, Chamber of Deputies President Jose Gonzalez Morfin offered reassurances that lawmakers are gearing up for at least one special session and left open the possibility for another - one for telecom reform and another for energy reform, both likely in May.
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com