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US Economic Update – 11 May 2015

US economic data continues to point toward a floundering economy

The core headlines from the last two weeks in relation to the US economy have been centred on the sharp collapse in GDP during the first quarter and the fact that the FOMC has dropped the term patient from its guidance on when it is likely to begin raising interest rates.

While the analyst community was almost unanimous in its expectation for activity to have dropped off during the opening quarter, there were very few who expected such a sharp fall in output.

With the annualised pace of US growth coming in at 0.2% during Q1, it is difficult to imagine how GDP could have fallen from 2.2% in Q4 to almost zero without there being any clear catalyst for such a fall, which is a point that has now led to much debate among officials over the way in which the advanced estimate for the opening quarter is calculated.

Our own view in this regard is that the recent figure, like many of the previous advance Q1 numbers, will most likely be revised higher in the coming months.

In relation to monetary policy, consensus estimates for an initial hike from the FOMC have now been revised backwards to September, with some analysts suggesting that the Fed may not hike until December.

While it is not possible to predict exactly when the Fed will actually move, we can say that economic data released over the course of the next six weeks will be key as to whether or not the voting members of the FOMC continue to see the current weights around the ankles of the economy as transitory.

Looking to the week ahead the core economic numbers scheduled to emerge from the US economy are retail sales numbers for April, followed by another round of UoM consumer confidence data.

After a growing number of consecutive disappointments in terms of retail sales, investors and traders will watch this week’s figures closely in order to gain an insight as to whether or not the downturn in discretionary consumption is close to running out of steam in the US.

We are neutral on the likely outcome for both sets of figures as we have been expecting a positive turn for a while and this has so far, failed to materialise.

In fact, all of the current evidence appears to point toward an ongoing tendency among US consumers to hoard, or to increase their cash positions in spite of a stronger jobs market and the 2014 collapse of oil prices.

For this reason we refrain from commenting on the likely outcome of this week’s numbers and shall instead, await the official releases.

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