Being as large as Wal-Mart is, they are always under fire; however the most recent barrage is coming over a surprising topic.
Wally World
Recently Wal-Mart announced plans to raise their minimum wage to $9/hr in 2015, $10/hr in 2016, and increase training expenses[1]. This is otherwise known as capital expenditure… just a little sarcasm. Given the number of people Wal-Mart employs, it is not going to create mounds of discretionary income, but should lead to additional consumer spending.
Wal-Mart is currently under fire from the markets for this announcement as it will cut into 2015 and 2016 profits. The reality is, capital expenditure is a necessity to maintain the long-term health of a company. Especially one the size of Wally World! I’ll get off my soap box now.
Domestic
Much of the data was mixed. Initial unemployment claims were down to 283K, Industrial production was up 0.2%, and Federal Reserve meeting minutes showed signs of lessening certainty around a mid-year hike in rates[2]. On the down side residential real estate statistics, both building permits and housing starts, disappointed; a shocker for January numbers… again with the sarcasm.
International markets are consistently showing advances on exports and reduced imports, further confirming recent numbers for the U.S., indicating a fall in exports and an increase in imports; with import prices falling drastically. A global softening of inflation has left the U.S. at a less competitive price point. This should act as a minor detractor to 1st quarter GDP.
PMI data released last week was encouraging. The U.S. & German data improved, while France continues to struggle with this key indication of growth.
International
Japan’s trade balance data surprisingly beat expectations to the tune of $500M. This came on improved exports and softening imports. Japan also showed the first sign of coming out of a short recession with 2.2% annualized GDP in the 4th quarter[3].
French Manufacturing and Services PMI came in at 47.7 and 53.4 respectively (above 50 is an indication of expansion)[4]. Eurozone stock performance has been strengthening as of late on the back of strong German optimism, Ukraine/Russia pseudo-ceasefire, and hopes that a deal will be completed with Greece. If a deal is not completed by the end of February; it is estimated that Greece will default on its debt by the start of April.
Conclusion
Improving oil prices should improve inflationary conditions around much of the globe and improve our trade balance. With how volatile the commodity can be, it can create an un-easy certainty around growing prices. To be clear, we don’t want to see oil create inflation, but rather stabilize deflation. This should allow job creation and wage growth (thank you Wally World), which can translate to consumer spending, and result in market capacity, which will force real inflation to emerge…
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[1] www.mfs.com – week in review
[2] www.investing.com – economic calendar
[3] www.mfs.com – week in review
[4] www.investing.com – economic calendar