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.

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Source: Bloomberg, Emirates NBD Research

While our macro scorecard for the US continues to show evidence of some slowdown in economic growth, by and large the picture the data releases of the past month paint is a mixed one and gives credence to Jerome Powell’s comments at the FOMC presser last night that ‘there are many areas of the economy that are performing too well’ [to be in a recession]. With the GDP growth figures for the second quarter set to be released later today (July 28), it remains to be seen whether he is right or not; the consensus forecast is for a 0.5% expansion (annualised). If this were missed, and the data shows a narrow contraction, this would be the second one in a row following Q1’s -1.6% and put the US in a technical recession. In any case, while growth is no doubt weakening – and the IMF revised down its forecasts once again this month – Powell’s assertion that there remains significant strength in some areas is backed up by the data.

The labour market in particular continues to perform robustly, exceeding expectations to date. The US non-farm payroll report for June saw a further 372,000 net gain in jobs, which was down slightly from the downwardly revised 384,000 gain in May but far better than consensus had expected (265,000). The headline unemployment rate meanwhile remained stable at 3.6%, belying expectations that the rate hikes already seen to date would prompt this to rise, and Powell did warn that a weaker jobs market could be necessary to bring down inflation (initial jobless claims are starting to rise, perhaps a harbinger of a higher jobless rate to come).

Inflation has continued to come in higher than expectations, at a fresh over-40 year-high of 9.1% y/y in June, higher than expectations of 8.8%, and the likelihood is therefore that the FOMC will continue to focus on the price growth element of its dual mandate, even if the pace of hikes slows (we anticipate 50bps hikes over the next several meetings rather than a continuation of the extraordinary 75bps hikes seen in June and July).

One data point which has seemingly exhibited some sensitivity to the higher rate environment is new home sales, which slowed by more than forecast in June. There were just 590,000, down from 642,000 the previous month as mortgage rates rose at the fastest pace in over 35 years and households are constrained by higher prices elsewhere. However, businesses seem to be shrugging off higher borrowing costs and a worsening outlook for now as durable goods orders in June came in far higher than expectations as they expanded 1.9% m/m. Even stripping out volatile transportation orders, growth was 0.3%.

Despite the pressures on households there has been a modest improvement in consumer sentiment in July as the University of Michigan consumer sentiment index picked up from 50.0 to 51.1. And while that remains low by historic levels, consumers continue to spend nonetheless, with retail sales expanding 1.0% m/m in June following May’s modest contraction (-0.1%).