First Quarter GDP

Gross domestic product increased at just a 0.7 percent annual rate in the first quarter of 2017, the Commerce Department said this morning. That was the weakest performance since the first quarter of 2014. In the fourth quarter of 2016, real GDP increased 2.1 percent.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to a 0.3 percent rate in the first quarter. That was the slowest pace since the fourth quarter of 2009 and followed the fourth quarter's robust 3.5 percent growth rate.

One factor was higher inflation, which saw the personal consumption expenditures index averaging 2.4 percent in the first quarter, the highest since the second quarter of 2011. That also weighed heavily on consumer spending.

New Job Creators Are Losing Ground

New companies simply aren’t the same job creators that they have been in decades past. According to Labor Department data released yesterday, during the expansion, new establishments have accounted for a little more than 11 percent of all new private-sector jobs created in the U.S.

During the 1990s, the figure was 15 percent.  That may seem like a small shift, but those few percentage points add up to nearly 300,000 jobs a quarter.

Looking back to 1992, the only sector where startups are now creating more jobs is education and health care. On the other hand, new manufacturing firms accounted for the creation of 22,000 jobs in the third quarter of 2016, down about 80 percent from 24 years earlier. Natural resources and mining, financial services and information—a sector that lumps together old-world publishing with software and internet services—are all down by about half.

The New Nasdaq

The Nasdaq reached a big benchmark yesterday, closing above 6000 for the first time ever. It's finally surpassed the heights it reached during the dot-com bubble in 2000.

The index is different now: Tech stocks only make up 44 percent of the index, versus about 60 percent when the dot-com bubble burst. Even in the last few years, the change has been noticeable. Consumer goods, which made up 3.2 percent of the index at the end of 2011, made up 5.3 percent at the end of March, and consumer services have gone from 18 percent to 21 percent over that same period.

The Nasdaq still includes it share of tech behemoths. Apple makes up more than 8 percent of the index by weighting. Microsoft makes up 5.7 percent; Facebook and Alphabet both make up more than 3 percent.

The Incredible Shrinking Bank

If you still like doing your banking by heading down to your local branch, you may have to change your ways. The number of bank branches in the United States will shrink by as much as 20 percent in five years, according to a report from commercial real estate firm JLL.

The U.S. banking industry could save as much as $8.3 billion annually if it trimmed the number of branches, and downsized the size of the average bank branch from 5,000 to 3,000 square feet, JLL estimates.

This has been a trend that has been in motion since the recession. U.S. banks have reduced their footprint by around 8 percent since the financial crisis, from 97,000 branches to roughly 90,000.

A Big Week for Earnings

This upcoming week will be a huge one for earnings reports, with more than 190 members of the S&P 500 index delivering quarterly scorecards. All told, the reports will account for around 40 percent of the S&P's total value.

Thursday will be the busiest day, with nearly 70 reports due. After the closing bell, we will hear from such heavy hitters as Alphabet (Google''s parent), Amazon, Intel, Microsoft and Starbucks.

Of the 95 S&P 500 companies that have reported earnings so far this quarter, 75.8 percent have topped analyst forecasts, slightly above the recent four-quarter average of 71percent. Some 62.1 percent have topped analyst revenue expectations, well above the 53 percent average over the last year.

Gleanings from the Beige Book

The economy continued to grow across the U.S. at a modest pace in recent weeks as a tight labor market helped broaden wage gains, though consumer spending was mixed, according to the latest beige book from the Federal Reserve. The report said that household purchases outside of automobiles were softer even as Americans were gaining more ability for future spending.

The report paints a picture of an economy maintaining its steady expansion, though without any rapid bursts of growth. Even so, wages showed progress in responding to a tightening jobs market, with most districts reporting "difficulty filling low-skilled positions" and stronger demand for higher-skilled workers.

The report made surprisingly little mention of the harsh weather that had the potential to interrupt activity, especially in the Northeast. The New York region reported "little adverse effect from the mid-March snowstorm" and "tourism and travel activity generally picked up" across regions, the book said.

Fund Managers Look Overseas

The hottest category in stock funds right now: Europe. In April, allocations to equities in the eurozone jumped to a 15-month high, according to the latest survey of fund managers by Bank of America Merrill Lynch.

Meanwhile, allocations to U.S. equities dropped to their lowest level since early 2008. Some 83 percent of the respondents - a record for this particular survey - said U.S. equities were overvalued. Nearly a third of investors said global equities were overvalued, which is close to a 17-year high in that reading.

Fund managers also boosted their cash allocations slightly, up to 4.9 percent in April from 4.8 percent in March. The 10-year average for cash allocations is 4.5 percent.

Good News, Bad News

First the good news: Median usual weekly earnings for full-time workers rose 3.9 percent in the first quarter from a year earlier, the Labor Department said yesterday. That was the best gain since late 2008.

Nearly eight years after the recession ended, weekly pay is nearing the 4 percent annual growth pace that was reached in the prior two economic expansions. That’s a sign that the economy has returned to full health.

But there's some bad news: When adjusting for inflation, paychecks are growing more slowly than they were a year ago. Inflation is still fairly low, but higher than it was in 2015. When factoring in price changes, weekly earnings rose just 1.2 percent from a year earlier. That matches the fourth quarter of 2016 as the smallest advance since late 2014.

Where Your Tax Money Goes

Today is tax day, when most Americans file their income taxes. The Wall Street Journal has helpfully broken down where our tax money goes. For every $100 you pay in federal taxes:

• Social Security gets $23.61    
• Medicare  gets  $15.26    
• National defense  gets  $15.24    
• Medicaid  gets  $9.55    
• Interest  claims  $6.25    
• Other spending  claims  $4.94    
• Veterans  get  $4.58    
• Civilian federal retirement gets   $2.57    
• Transportation  gets  $2.39    
• Refundable credits get  $2.21

The Slowing Sales Economy

Consumer retail sales in March fell unexpectedly by 0.2 percent, but that's not the end of the issue. At the same time, February’s previously recorded gain of 0.1 percent was revised down to a negative 0.3 percent. Those were the weakest consecutive monthly declines since the first two months of 2015.

The main headwind came from auto dealerships and gas stations. Auto deal sales fell to $87.8 billion from $89.1 billion in February, down from $90 billion in January. Gas station sales fell to $36.5 billion from $36.8 billion in February.

Aside from those two categories, though, sales pretty much treaded water in March. Excluding cars and gas, retail sales were up 0.1 percent last month.

More Oil Woes

As the price of oil remains fairly low, there's a new complicating factor. Global oil demand is expected to grow at a slower pace for the second year in a row in 2016, the International Energy Agency said yesterday.

OPEC launched an effort this year to cut almost 1.8 million barrels a day of oil, with help from other countries, including Russia, the world’s largest crude producer. And OPEC’s oil production fell by 365,000 barrels a day in March.

But it doesn't seem to be enough to lift prices. The IEA said the production cuts so far have had just a limited effect on massive levels of stored oil, which built up in 2015 and 2016 as traders bought cheap crude to sell later at higher prices. Combined with slack demand, that may keep prices low for some time.

The Amazing Shrinking Stock

One of the most amazing stories in the stock market is about a company called Dryships, a Greek shipping company. When companies grow, their stocks often split, but Dryships has fallen on hard times, and its stock has reverse-split - by a whopping 48,000 to 1.

Let's say you owned 48,000 shares of Dryships back in early 2016. It had a reverse split of 1-25 that March, which means your original 48,000 shares were now just 1,920 shares. Five months later, in August, it did another 1-4 reverse split, reducing the 1,920 shares down to 480. Just three months later, there was a 1-15 split, so those 480 shares you now held were reduced to just 32 shares. In January of this year, Dryships did a reverse split of 1-8, which reduced those 32 shares to just four. Then, this week it did another reverse split of 1-4 shares, reducing your original 48,000 down to just one measly share.

On a split-adjusted basis, Dryships was trading at over $8,000 per share back in early 2016. After all those reverse splits, it now trades at under $2 per share.

Healthy, Wealthy and Wise

Being wealthy has a lot of perks attached to it, but according to a new study in the British medical journal the Lancet, the rich get the biggest perk of all. They get to live longer.

In the United States, the wealthy live as much as 15 years longer than their poorer compatriots.  The studies not only find the richest 1 percent live up to 15 years longer than the poorest 1 percent, but that the gap in life expectancy between rich and poor has increased in recent decades.

The poorest among us are the ones on whom the system has taken the biggest toll, the Lancet reports. In fact, life expectancies have fallen in some groups despite advances in treatment. Women in the poorest 20 percent, born between 1930 and 1960, statistically lived four years less than women in the richest 20 percent.

The Upside on Earnings

As of the end of March, S&P 500 companies were forecast to report earnings growth of 9.1 percent during first quarter earnings season, which kicks off this week. But companies often beat expectations, so the actual earnings growth may be higher.

Over the last five years, 68 percent of companies, on average, have beaten analyst forecasts, adding 2.9 percent on top of expectations, according to FactSet. That would mean the first quarter earnings growth rate could be more like 12 percent, which would be the the best since 2011.

Much of the gain in earnings can be chalked up to the energy sector, which is turning profitable again as oil prices have stabilized. In addition, financials are forecast to have grown earnings by 14.5 percent in the first three months of the year, with bank earnings up 10 percent, according to FactSet.

Retail Unravels Further

Here's a sobering follow-up to Friday's disappointing employment report: More jobs were lost in the beleaguered retail industry than any other sector over the past two months. Some economists are starting to wonder if the number of jobs available at brick-and-mortar stores may have peaked.

The U.S. retail industry shed 29,700 jobs in March and 31,000 in February, according to the Labor Department. The combined two-month decline was the largest since 2009, and comes after the number of workers in the retail industry peaked near 16 million in January.

Some 2,880 store closings have been announced so far in 2017, compared to 1,153 over the same stretch last year, according to Credit Suisse. The current pace of store closures puts the industry on track to top 8,600 this year, far exceeding the peak of 6,163 hit in 2008, at the onset of the financial crisis.

March Jobs Report

The March employment report, out this morning from the Bureau of Labor Statistics, was the most disappointing in a while. The economy added just 98,000 jobs for the month, well down from February’s revised job gains of 219,000.

The good news was that the unemployment rate dropped to 4.5 percent, a new post-recession low and the lowest since May 2007. Wages also rose, increasing by 0.2 percent over last month and a total of 2.7 percent over the prior year.

Today’s report also saw both the January and February jobs numbers revised down by a combined 38,000. Over the past three months, job gains have now averaged 178,000.

The Fed's Inflation Worries

The Fed released the minutes from its last meeting yesterday, and one of the concerns is the return of inflation. Some Fed officials worried that if unemployment, currently at 4.7 percent, fell even further, it could pose a “significant upside risk” of higher inflation.  The Fed's unemployment goal is 4.8 percent, and inflation has remained below the Fed's 2 percent inflation goal for several years.

Some Fed officials argued that the inflation target might be achieved by the end of this year. Others argued that since inflation had run below 2 percent for so long, it would do no harm to allow prices to rise above 2 percent for a time.

“Nearly all members judged that the committee has not yet achieved its objective for headline inflation on a sustained basis,” the minutes said. “A few members expressed the view that the committee should avoid policy actions or communications that might be interpreted as suggesting the committee's 2 percent inflation objective was actually a ceiling.”

Financial Hardships for Women

While there’s been a little improvement in the financial capability of women, they still trail men in being able to make ends meet or covering a financial emergency. That’s according to a report by the TIAA Institute and the Global Financial Literacy Excellence Center, which finds that despite improvement over the study period—2012 through 2015—certain subgroups are still exhibiting financial distress.

In 2015, three-quarters of working women held at least one form of long-term debt, the study found, with many carrying too much debt. Even worse, working women are not prepared for retirement. The majority don’t even plan for it, while two-thirds fear running out of money once they do retire.

In addition, 54 percent of working women do still find it tough to meet all their monthly expenses. Those just beginning their careers, those with lower levels of education and African American women find it particularly difficult.

First Quarter Winners

We looked at the results for the major indexes for the first quarter of 2017 yesterday. Here are the stocks in the S&P 500 that had the strongest first quarters:

• NRG Energy was up 52.8 percent year to date. The utilities sector is up about 5.2 percent for the year.
• Vertex Pharmaceuticals was up 48.4 percent; it released positive results for a cystic fibrosis drug just last week.
• Activision Blizzard was up 38.9 percent; it's the leader in the video game subgroup of the tech sector.
• Viacom Inc., owner of MTV and Paramount Pictures, was up 33.4 percent
• Incyte Corp. was up 33.3 percent; another pharmaceutical, it focuses on cancer drugs.

First Quarter Scorecard

The first quarter ended on Friday, and it was a banner quarter for all the major indexes. The S&P 500 index gained 5.5 percent, its strongest first-quarter performance since 2013 and the best gain it's posted in any quarter since the fourth quarter of 2015.

The Dow Jones industrial average was up 4.6 percent over the past quarter. That marks the sixth consecutive quarterly gain for the Dow, the longest such stretch since the fourth quarter of 2006.

After all that, though, the Nasdaq was the best performer of all the major indexes, returning a nearly 10 percent gain over the past quarter. That's its best quarterly performance since the end of 2013.