Outlook for Second-Quarter Growth Firms American shoppers increased their spending in June and factories picked up production, adding to evidence the U.S. economy is wrapping up a solid second quarter despite challenges from abroad.
(…) Strong retail sales in June, coupled with an increase in manufacturing output, set the stage for a stronger-than-expected reading for economic growth in the second quarter. After Tuesday’s reports, forecasting firm Macroeconomic Advisers raised its projection for gross domestic product to grow at a 2.1% seasonally adjusted annual rate in the quarter, from a previous forecast of 1.8%. (…)
Let’s recap the U.S. consumer: crucial November and particularly December sales were quite poor, possibly prompting Powell’s pivot. Q1 were quite good but these seasonally slow months did not offset the awful December. By the end of March, real retail sales were merely back to their October 2018 level. April was flat. May and June are up 4.3% annualized.
Here’s the quarterly trend in real retail sales:
“Control Sales” go direct into GDP:
(Core sales, quarterly, YoY (GS):
On July 1, I wrote
Last Friday we got the important Personal Income and Outlays report. It will make the FOMC err to the brighter side. Real expenditures have grown at a 5.3% annualized rate in the 3 months since March, a major turn from the –1.9% annualized rate in the previous 3 months. Notably, April was revised from zero to +0.24%. Also notable is the improvement in nominal disposable income growth from a weak 2.5% annualized rate in Q1 to +5.5% in April and May.
Americans tend to sync spending with income over time. This recent acceleration in disposable income bodes well for the summer months, especially if inflation is quiet.
Spending in restaurants is perhaps the most discretionary expenditure. From September to December, Americans stayed home. Last 5 months, they have increased their going out expense nearly 10.0% annualized.
The consumer is back on track. Nearly 70% of the economy. Another pivot?
Not so fast!
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Powell Says Fed Must Pay Greater Attention to Global Developments Federal Reserve Chairman Jerome Powell highlighted the growing importance of global developments in monetary policy—a reflection of how slowing growth abroad has likely set the stage for the U.S. central bank to cut interest rates.
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Fed’s Kaplan Says Rate Cut Could Be Warranted Based on Bond Market Dallas Fed President Robert Kaplan said he could be convinced by arguments to cut rates based on signals coming from bond markets, even though he hadn’t penciled in any rate cuts this year at the central bank’s June policy meeting.
Is this also a pivot?
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Kyle Bass wagers Fed policy will turn Japanese Fund manager who called subprime mortgage crisis predicts US rates will touch zero
The recession scenario just weakened some more.
And inflation was up last month on strong Services prices and rising Goods prices. Big jump in inflation expectations, from 1.7% to 2.0% in one month:
Hmmm…
EARNINGS WATCH
We now have 31 reports in: the beat rate is 81%, the surprise factor is +5.3% leading to a blended growth rate of -0.1%. The 31 companies having reported have an aggregate earnings growth rate of –4.4% on revenue growth of +2.9%. At the same time during Q1, the 29 companies having reported had aggregate earnings growth of +2.2% on revenue growth of +5.3%.
SentimenTrader’s Dumb Money Confidence exceeded 80% on Monday. ST’s Backtest Engine shows there have been 151 days with a reading this high in the past 20 years. The S&P’s annualized return was -22.3% following those days. Over the past 7 years, all 25 days showed a negative return a month later, averaging -3.0%.
Tech Giants Draw Fire in Congress Lawmakers suggest internet companies need more oversight to ensure competition
Concerns about the power of the major technology companies echoed across the nation’s capital on Tuesday, with politicians in both parties demanding more regulatory scrutiny of the tech giants’ reach and plans for expansion.
(…) the internet has become increasingly concentrated, less open and growingly hostile to innovation and entrepreneurship.” (…)
In their testimony, the companies said that they still face competition in markets from advertising to apps, and that their online platforms have facilitated the growth of many other smaller companies.
“We have helped reduce prices and expand choice for consumers and merchants in the U.S. and around the world,” said Adam Cohen, Google’s director of economic policy. (…)