April’s consumer spending figures remained stable, as reported by the US Bureau of Economic Analysis. However, income showed a more promising increase than anticipated. Additionally, private-sector wages in April also demonstrated stronger growth, which contributes to a quicker year-over-year increase. These improved wage figures, being the primary driver of personal income, suggest that the recent dip in consumption is more a result of self-restraint rather than a decline in household earnings. While the income growth remains modest, it lends further support to the view that the US economy is not heading towards a recession.
While the gross domestic product (GDP) shows a decline, the gross domestic income (GDI) is on the rise. This discrepancy raises concerns about a potential recession in the US, while GDI suggests continued growth, albeit at a slower rate than previously observed. The GDP fell by 0.7% in the first quarter, contrary to a 1.4% increase in GDI, which is often regarded as a more reliable gauge of economic activity.
May was not particularly kind to major asset classes, with only US stocks and a slight gain in US high-yield bonds showing positive returns. Conversely, emerging market stocks suffered significantly, with the MSCI Emerging Markets Index, which had achieved its largest gain in over three years during April, dropping by 4.0% in May.
● US Economy Contracted 0.7% in First Quarter | NY Times
● Forget GDP: Here’s the new way Wall Street is measuring the US economy | BI
● Consumer Sentiment in U.S. Decreased in May to Six-Month Low | Bloomberg
● Eurozone Manufacturing Recovery Continues In May | RTT
● Germany May Manufacturing PMI 51.1 vs Flash Reading 51.4 | Bloomberg
● UK CIPS May Manufacturing PMI Lower Than Forecasts | MNI
● Greece faces crucial week of IMF repayments | BBC
● Hubris: Why Economists Failed to Predict the Crisis
and How to Avoid the Next One
By Meghnad Desai
Review via Times Higher Education
The current economic landscape reveals that the concept of inherent stability, once heralded by many economists, is a misconception. Desai indicates that cycles and crises are integral to capitalism, describing it as a dynamic system governed by periods of disequilibrium. He references Nikolai Kondratieff’s “long wave” theories, suggesting that the turbulence seen in 2008 marked the end of an upswing within a lengthy economic cycle that began in the early 1970s.
In line with expectations, the Bureau of Economic Analysis has revised down the US GDP for the first quarter, now showing a slight contraction of 0.7%. This figure is a decline from the previously reported increase of 0.2%. While this downward adjustment casts a shadow over the economic outlook, it is premature to conclude that the recovery is at an end. Although the figures indicate trouble on the surface, they do not definitively signal the demise of economic growth.
The recent fluctuations in US economic data prompt new considerations regarding the Federal Reserve’s interest rate strategy. The initial forecast for the first interest rate hike has shifted to September, with some experts suggesting that increases may be delayed until early next year. The Treasury market’s signals, meanwhile, appear mixed. By analyzing moving averages of Treasury yields, the 2-year yield is trending upward, indicating increased rate expectations, while the 5- and 10-year yields are showing a downward trend, though hints suggest this decline may be stabilizing.
● US Jobless Claims Rise, But Job Growth Still Seen Strong | WSJ
● US pending home sales race to nine-year high in April | Reuters
● Consumer Comfort in US Slumps on Views of Buying Climate | Bloomberg
● Eurocoin Business Cycle Indicator Rises Further In May | RTT
● German retail sales rebound in April | Reuters
● French Consumer Spending Rebounds Less Than Expected In April | RTT
● Weak Household Spending, Inflation Dampen Japan Economic Outlook | RTT
● Is China easing losing its mojo? | CNBC
Last week, new claims for unemployment benefits in the US saw an increase, although the longer-term trend remains favorable. Initial forecasts estimated that claims would decline to a seasonally adjusted 270,000; however, they rose to 282,000, according to the US Labor Department. Despite this uptick, the four-week average, which is nearing a 15-year low, showed minimal change, and the year-over-year figures continue to exhibit healthy declines. Overall, these indicators suggest continued growth in the labor market despite the recent rise in claims.
Recently, Federal Reserve Vice Chairman Stanley Fischer outlined the criteria for increasing interest rates. In his prepared remarks during a speech in Tel Aviv, he stated that “the tightening of US policy” would only commence once the US expansion has sufficiently progressed, which includes further improvements in the labor market and increased confidence in reaching the 2% inflation target.
