- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
August 17, 2023
After a strong GDP report for Q2 there were a lot of expectations for some of the momentum in the US economy to fade. Despite Fed rate hikes, the economy has expanded at an annual rate of at least 2% over the last four quarters after the technical recession at the beginning of 2022. Personal consumption has also been strong since the end of the pandemic, growing by at least 1% in every quarter since the beginning of the pandemic. Surely these numbers couldn’t be maintained after more than 500 basis points of hiking? Early July economic data suggests that it is possible.
To start the week, retail sales topped expectations by a substantial margin coming in at 0.7% MoM compared to an 0.4% MoM consensus estimate. When excluding auto sales, the beat was even stronger at 1.0% MoM vs the same 0.4% MoM consensus estimate. Despite some weakness in sales of electronics and furniture (both down -1% MoM or more), non-durable and services spending more than made up the difference. Food & drinking services spending remains the leader on the consumption end, up 1.4% MoM and 11.9% YoY in July, which is representative of consumers maintaining strong demand for services throughout the year so far. That seems like it could be a trend that follows into Q3. Non-durable categories like food & beverage (0.8% MoM) and clothing (1.0% MoM) were right there with strong food services. Finally, we also strength in the nonstore retail sales category (1.9% MoM) which benefitted from Amazon’s Prime Day during the month.
A day later, the Federal Reserve released an update on industrial production which has been a notable segment of struggle for the economy so far in 2023. This is one sector that has actually seen weakness as a result of tighter financial conditions. Both the ISM and S&P Manufacturing PMIs have pointed to an industrial contraction in the last few months, and weak industrial production has followed. However, July results pointed to a slight turn around in the fragility. The headline index increased 1.0% MoM, the strongest increase since the first month of the year, which surged past the consensus forecast of a meager 0.3% MoM increase. The gain was boosted by final product manufacturing, specifically consumer goods up 1.4% MoM and business equipment up 1.0% MoM. Now this report is slightly less rosy than the retail sales data, both headline and manufacturing industrial production are down on a YoY basis (-0.2% MoM and -0.7% MoM), but the bright start to Q3 gives hope that a turn around is possible. This is especially true when considering that producer prices of goods have been negative for a few months now which is likely a huge relief for manufacturing firms.
The early resilient economic data for July has many forecasters questioning the call for a slowdown in the second half of 2023 and a potential recession at the turn of the new year and the start of 2023. The most famous nowcasting model, the Atlanta Fed GDPNow estimate, has Q3 2023 GDP growth projected at a hot 5.8%, more than double the rate of growth in the first two quarters. The duo of July reports mentioned above caused the model to adjust this forecast up 1.7 ppts from 4.1% at the start of the week with estimates of consumption growth and equipment investment rising with it. While this model is often discounted for its volatility, top forecasters elsewhere are increasing Q3 GDP estimates from near nothing at the beginning of the quarter to close to 2% in August. The general sentiment is unquestionable: the US economy is not fading away, and the resilience will continue into Q3.
From Econ Mornings