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US Economic Update – 18 May 2015

US consumption data remains weak as households fortify balance sheets ahead of an eventual FOMC lift off

The headline event for last week in the US in terms of economic data was undoubtedly the release of retail sales figures for April.

Here the Census Bureau’s data appeared to highlight another month of belt tightening among American consumers as core retail sales (ex autos) fell from +0.7% in March down to +0.1% in April, while the headline measure (inc autos) also recorded a steep drop from +1.1% in March down to 0.0% in April.

In another seemingly dire outcome for the economy, producer prices were also revealed to have crossed below the 0.0% no growth line during April, although we believe that this probably has more to do with a stronger US dollar than it does to do with any form of economic weakness.

However, even if producer price deflation was not enough to unease investors at what must seem like a time of increasing economic uncertainty, the University of Michigan consumer sentiment poll for May also surprised on the downside when the index fell from 95.9 down to 88.6 in a single sitting.

As a result many analysts across the industry now appear to be reassessing their expectations for the US economy and US interest rates during the months ahead.

While in our own view it is still too early to call whether or not the current downturn in consumption will continue through to the close of Q2, if it does then it is highly likely that we will not see a move on rates coming from the FOMC till late in Q4 at the earliest.

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Looking ahead

Looking to the week ahead the headline events from an economic perspective are likely to be the release of FOMC meeting minutes on Wednesday, followed by inflation data from April on Friday.

We do not expect any new information of note to emerge from the FOMC minutes given that there was a full statement and press conference that took place after the last meeting however, the release of inflation numbers on Friday will be interesting.

This is because with several consecutive periods of inflation either having increased or held firm, it will be telling to see whether or not it has stayed so during April, particularly in the face of the ongoing US dollar strength that was seen throughout the month.

If it does then this could reignite expectations among rate hawks and dollar bulls for some form of action from the FOMC ahead of the fourth quarter, which may prove a hindrance to US stocks at the close of the week.

Dow Jones / 8 Hour Intervals

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