US macro scorecard - March

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 macro scorecard - March

Source: Bloomberg, Emirates NBD Research

Our US macro scorecard for the data releases of the past month paint a mixed picture on first glance, with as much as red as green suggesting a marked slowdown in activity. This could add to concerns around a potential US recession following the Q1 GDP contraction, the yield curve inversions seen recently and the mounting external threats to growth from higher prices and Chinese lockdowns. However, many of the data points in our scorecard were only narrowly down on expectations or the previous month’s readings, and the overall performance has remained robust. We don’t believe the March data will dampen the Fed’s commitment to more aggressive tightening as it looks to rein in high inflation which had risen to 7.9% in the March print, and we expect them to raise the Fed Funds rate by 50bp in May.

The weaker than expected Q1 GDP data, which showed an annualised q/q contraction of -1.4% appears far worse on first glance than it actually is, given that much of the contraction was driven by a surge in imports and declines in inventory – net exports exerted a 3.2 percentage point drag on growth. Swings in the trade component have continued as the effects of the Covid-19 pandemic and associated lockdowns have affected supply chains, and indeed the strong fourth quarter last year was largely driven by inventory restocking, which was unlikely to be repeated in Q1. All the same, durable goods orders picked up again in March, rising 0.8% m/m following the -1.7% contraction seen in February. In the GDP data, business investment actually rose 9.2% q/q.

Likewise, the recent surge in US imports seen in the GDP data was in part due to easing of shipping blockages, and is also in any case indicative of a robust consumer, the bulk of the US economy. Growth in retail sales slowed in March with a 0.5% expansion (down from 1.7% in February), and high inflation and tighter policy to come will pose a challenge. Nevertheless, growth remains positive and consumer sentiment actually improved in April according to the University of Michigan survey. The survey showed that the strength of the labour market and prospects for wage growth were starting to outweigh concerns around accelerating inflation, and the headline survey reading rose to a three-month high. This is backed up by the GDP data for Q1, with personal consumption up 2.7% q/q.

Looking at the labour market data of the past month there is good reason for optimism. While the headline NFP net gain in jobs was down on expectations and the previous month, at 431,000 it remained robust, and there is a fair chance that it will be revised up further on subsequent prints as has become the norm in recent months. Over the quarter, the monthly gain averaged 562,000. Meanwhile initial jobless claims have stabilised around the 180,000 mark, similar to levels seen prior to the pandemic.

In the housing market, new home sales were slower than in February, and rising interest rates from the Federal Reserve will likely put a dampener on activity in the housing market. Nonetheless, new housing starts exceeded expectations in March.