Bloomberg: US economic data signals more stable growth

The strengthening of consumer spending and the decisive reduction of the trade deficit show that the US economy is emerging in a short time from the puddle of the first quarter, according to Bloomberg.

Maintaining this momentum later this year is even more questionable, as manufacturing and housing weaken along with rising employment and wages. Inflation, although easing slightly, remains high and the US Federal Reserve will continue to push hard at monetary policy.

In April, inflation-adjusted household markets recorded the strongest progress in three months and will help the tail of the gross domestic product recovery this quarter. The deficit in trade in goods – a huge factor contributing to a 1.5% year-on-year decline in GDP – shrank last month at the highest rate since 2009.

While these developments are a cause for optimism for the economy, regional processing surveys have declined, while orders for capital equipment have eased slightly.

Next week, the government is expected to report that employment growth has cooled in May, suggesting that labor demand is starting to warm up less. This may help ease wage pressure later this year and ultimately provide some relief to central bankers as they seek to reduce inflation.

Consumer resilience

Consumer spending was strong in April, rising 0.7% on an inflation-adjusted basis. However, savings rates have fallen to their lowest level since 2008, indicating that Americans are increasingly relying on savings as price pressures weigh on budgets.

The increase in spending was broad-based, driven by both goods and services. Economists had expected demand for services such as travel and leisure to outpace commodity spending as pandemic concerns eased, but spending on inflation-adjusted goods rose 1% in April from a month earlier. and services increased by 0.5%.

“The report makes it clear that consumers continue to consume despite facing the highest inflation in 40 years,” Wells Fargo & Co. economists wrote in a note. Tim Quinlan and Shannon Seery. “But we are nearing the end of the lollipop,” they said, noting the reduction in savings.

At the same time, as annual inflation cools, it is still running three times faster than the Fed target of 2% and explains why central bankers are expected to raise interest rates by half a point in the next sessions. That could also lead to lower consumer spending in the coming quarters, Wells Fargo economists wrote.

Housing stumbles

Last year’s “hot” housing market is cooling rapidly as a sharp rise in mortgage rates exacerbates the problems of affordability.

In April, new home sales fell the most in nearly nine years, according to government data on Tuesday. An index of signatures on contracts for homes owned by previous properties fell for the sixth consecutive month, the largest such slip since 2018.

Processing is mitigated

Government data this week showed a 0.8% increase in remittances of fixed capital goods, which could allow for more stable business spending on equipment at the beginning of the second quarter. At the same time, the increase in basic orders moderated after a wave in March.

The data suggest that companies are sticking to capital spending plans as they seek to boost productivity to ease the burden of high inflation and a narrow labor market. It is less clear, however, whether companies will reconsider their current investment rate later this year in the face of higher interest rates and the expected slowdown in economic growth.

Recent Fed regional bank surveys have shown a clear decline in activity. Manufacturing rates in New York State and the Fed’s Richmond and Philadelphia regions all fell in May and are at or near their lowest levels since mid-2020.

A milder increase in production, combined with an increase in stocks, may help further reduce the demand for goods and materials manufactured abroad. The government said on Friday that the trade deficit shrank by nearly $ 20 billion in April.

Imports fell 5% during the month due to lower demand for industrial supplies, capital goods and consumer goods.