US macro scorecard - May

US macro scorecard

Source: Bloomberg, Emirates NBD Research

At first glance our macro scorecard for the US in May looks like a fairly mixed bag, and there certainly does appear to be an element of ‘reopening fatigue’ in recent data releases which has seen them come in short of expectations. This was perhaps inevitable given the rapid pace of the recovery seen earlier in the year, but the initial impressions still somewhat belie the apparent underlying strength in the US recovery. While a number of these metrics may have missed consensus analyst expectations, in some cases this was actually due to the pace of the rebound from the pandemic crisis, and the stresses that has placed on supply chains and availability. Indeed, the Federal Reserve this month revised up its real GDP growth forecast for 2021 from 6.5% previously to its new projection of 7.0%, and first quarter GDP data released last week showed an annualised y/y expansion of 6.4%.

One industry that was a victim of its own success last month is the real estate sector. New home sales surprised with a -5.9% decline to 769,000 in May, far shy of the projected 865,000. As demand has surged and prices have hit new record highs some homebuyers have seemingly decided to wait on the sidelines for now, especially as the rush for space seen at the peak of the pandemic has become less pressing. Meanwhile, the sector has also been afflicted by the inflationary pressures and shortages that are affecting other industries, and new housing starts came in shy of expectations at 1.57mn in May – but still up on the previous month’s 1.52mn.

Meanwhile, retail sales fell -1.3% m/m in May, but this was more reflective of the ongoing opening up of the economy and the ability for consumers to spend their dollars on experiences as well as things. A similar trend was seen in the UK and will likely persist for several months but is unlikely to endure all year. As a counterpoint, OpenTable data for the US shows that seated diner bookings are now positive compared to the same period in 2019 on a seven-day moving average basis for the first time since the pandemic began. On the production side, the expansion is slowing but remains robust as industrial production expanded 0.8% m/m, and the ISM manufacturing index came in at 61.2, far above the 10-year average of 53.9.

Durable goods orders expanded 2.3% m/m in May, which on the face of it appears a positive for future growth but the figures were skewed to the upside by a 7.6% increase in transportation orders. Core capital goods orders actually declined by -0.1% compared to April, but on the positive side, core capital goods shipments saw a third consecutive month of growth, increasing by 0.9%.

While the activity indicators are largely positive, even if missing expectations and exhibiting some signs of a slowdown, the situation in the labour market remains more questionable. Weekly initial jobless claims remain stubbornly high at 411,000 in the week ending June 19, around double the normal level seen prior to the pandemic. The latest NFP jobs report is due at the end of this week, and consensus projections see a net gain of 700,000 jobs. However, predictions have been missed over the past several months, with May’s gain just 559,000, far short of the predicted 675,000. In the recent FOMC press conference Jerome Powell gave a number of reasons as to why the labour market might be taking longer to recovery, including issues over child care and residual fears regarding the pandemic, but he remained positive that the US is ‘on a path to a very strong labor market — a labor market that shows low unemployment, high participation and rising wages for people across the spectrum.’ With the Fed still vocally focused on pursuing full employment it will be looking for a more marked improvement in these data points before it contemplates significantly tightening policy – even as inflation surprised to the upside once again in May, at 5.0% compared to consensus 4.7%.