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Daniel Richards - MENA Economist
Published Date: 31 May 2021
Source: Bloomberg, Emirates NBD Research
Perhaps the most debate-generating data of the past month in the US has been that around price growth, as we saw inflation metrics hit decade and multi-decade highs, prompting renewed chatter around whether or not this is truly a transitory phenomenon, or if it will in fact prompt the Federal Reserve to at least ease up on quantitative easing sooner than it is current signposting. Indeed, there has been a growing acknowledgement from some senior Fed officials that the time to discuss having the discussion at least is nearing. However, a quick glance at the macro scorecard above, in which we track each month some of the most-followed US economy indicators, would appear to confirm the Fed’s ongoing assertion that the recovery is not yet assured, especially given their stated aim of pursuing full employment.
The CPI inflation print for April did surprise markedly to the upside at 4.2% (compared to expectations of 3.6%), which was the highest level since 2008. Equally, the Fed’s preferred gauge of price pressures, the commerce department’s core personal consumption expenditure index, hit 3.1% y/y, the highest level since 1992. However, at the same time it remains clear that full employment is still some distance off, and the Fed is unlikely to remove the sugar bowl while jobs data is missing the mark so severely. The NFP report for April saw a net gain in jobs of just 266,000, far short of the 1mn jobs that analyst consensus had projected, and a sharp slowdown on the previous month’s 770,000. Initial jobless claims have continued to fall, and is one of the few green spots on the scorecard this month, but even at these comparatively low levels of 444,000 each week (compared to a pandemic high of 6.2mn) it is still more than double the levels seen prior to the crisis. Debate over the true driver of the poor NFP report – whether it was driven by a weak economy, a mismatch in jobs or overly generous pandemic support payments – will continue until we see the May figures and maybe more clarity over the drivers, but the more timely initial claims data would also suggest that the recovery still has some hurdles to clear.
Direct stimulus payments, part of President Biden’s American Rescue Plan, skewed other metrics related to consumption. April retail sales were flat on the previous month, but March did see a 10.7% m/m gain as these cheques landed on doormats and the economy reopened. The lack of growth in April did disappoint, missing projections of 1.0%, but this obscures the y/y gain of 51.2% (and 21.0% on April 2019). Indeed, the outperformance by the University of Michigan sentiment index, which beat expectations and rose to a pandemic high in April, would suggest that consumer spending will remain robust in the near term. While the NFP report disappointed, an all-time record number of respondents to the consumer confidence survey were of the view that unemployment would decline over the coming year.
Likewise, the headline durable goods orders print for April disappointed as it surprised with a -1.3% m/m contraction compared to projected 0.8% growth, but again this obscures a more positive story. The ex-transportation sub-component of the index actually surprised to the upside with growth of 1.0% (consensus projection 0.7%). The headline figure was dragged lower by the transportation sector which continues to feel the pressure of global chip shortages – an aftereffect of the pandemic which is also playing its hand in driving up inflation. This business investment augurs well for the second quarter GDP growth, with data released at the end of May showing that the first quarter narrowly missed expectations. Annualised q/q growth was 6.4%, up from 4.3% in Q4 2020 and compared to consensus 6.5%.
In short, the recovery in the US is certainly underway, and growth this year is likely to be the strongest in decades, but the disruption caused by the pandemic crisis is by no means over. This will not only throw up some interesting month-on-month comparisons but will also likely impede a rapid comprehensive recovery in the jobs market. As such, while higher inflation – another pandemic fallout – will fuel debate, for the time being we expect no shift in Fed policy.
US macro scorecard - March
US macro scorecard - February
Monetary Policy Review
ECB meeting in focus