US macro scorecard - June

A round-up of the most widely followed monthly macro data points from the US, compared to expectations and the previous month's results.

US GDP fell short of expectations in the second quarter, coming in at an annualised rate of 6.5% q/q, compared with consensus projections of 8.4%. This was almost the same pace of growth as the previous quarter’s rate of 6.4%, and suggests that growth has peaked, a suggestion underscored by our macro scoreboard for June. While some of the metrics remain strongly positive compared with historical averages, the pace of expansion appears to be slowing. With concerns around the spread of the Delta variant of Covid-19 to the fore, and a substantial proportion of the population still not vaccinated, the coronavirus pandemic still has the power to disrupt, adding to the residual supply chain disruptions which are already holding back growth.

One of the green spots in our scorecard for June was the NFP report, which at 850,000 beat both the previous month and the consensus projection, and was the strongest reading since August 2020. The report was seen as a goldilocks result for the Fed ahead of their July meeting, as it exceeded expectations but not to a degree that might suggest an overheating economy, while m/m wage growth slowed, further dampening any impetus to tighten monetary policy. However, while the net gain in June was positive, the total number of employees on NFPs remains 6.8mn lower than just prior to the pandemic crisis, supporting Fed chair Jerome Powell’s view that the ‘substantial further progress’ being sought before removing support has not yet been realised. The consensus projection for the July figure, released later this week, is for a further net gain of 900,000 jobs, but even this would still leave far fewer jobs than there were last February. Further, weekly initial jobless claims remain around double what they were prior to the pandemic, and unexpectedly rose once more in the week ending July 17, illustrating that there remain considerable uncertainties.

One of the key takeaways from the Q2 GDP growth print was that supply chain issues are weighing on the US recovery, as firms have struggled to meet the surge in reopening demand. The ISM manufacturing survey dipped slightly in June, while the Markit survey rose modestly, but respondents to both cited problems with shipping and sourcing goods as holding back their activity. This was apparent in the GDP report, where inventory drawdowns were one of the major factors in constraining growth. With rising Covid-19 case numbers in Asian exporting economies, the risks to this remain to the upside. Meanwhile, industrial production growth slowed to 0.4% in June, down from 0.7% the previous month and slower than the predicted 0.6%.

Retail sales returned to growth in June, expanding by 0.6%, and for now it appears that the American consumer is back and looking to spend some of the accumulated savings amassed during the pandemic and related lockdowns. In the GDP data, private consumption rose at an annualised 11.8% q/q, up from 11.4% in Q1. However, while consumer sentiment rose in June it has remained far off the levels seen prior to the pandemic, and resurgent Covid-19 cases and restrictions, or accelerating inflation, could jeopardise this recovery. Inflation hit 5.4% y/y in June, in part due to the aforementioned supply chain issues.