As the week wraps up, there are certainly huge changes ahead for the financial landscape in the U.S. The expected PCE (Personal Consumption Expenditures) data for May is scheduled to be released on Friday and will likely rock the boat. Economists and market analysts highly anticipate this report on consumer spending trends. This will help to illuminate the inflationary pressures that are negatively affecting our economy.
Retail sales in the US have boomed since late last year. In large part, that robust expansion is being fueled by explosive gains in real wages and a hot labor market. More than ever, consumer behavior is undergoing massive and rapid transformation. One major factor pushing this inexorable trend upward is people reallocating their spending from services to goods. The newest numbers don’t lie, and retail sales in May were down more than 1% seasonally adjusted. Additionally, depreciation of this magnitude casts doubt on the long-term durability of the current growth trajectory.
In our last update, the third and final revision of Q1 GDP came in a sharp downward revision to -0.5% q-o-q annualized rate. That’s a downward revision from the original estimate of -0.2%. The downward revision comes almost entirely from a drag from much weaker private consumption. This amazing drop-off appears to be fueled by future tariffs and their predicted economic effect.
In better news, stock markets rebounded dramatically yesterday. Overall, the Dow Jones Industrial Average was up by 0.9%, the S&P 500 by 0.8%, the Nasdaq by 1.0% and the Russell 2000 by 1.7%. These advances are a testament to the faith of investors, which remains strong even as many economic metrics continue to jump around.
In the secondary bond market, the one-year tenor has shifted 2+ bps tighter. It currently served as its most restrictive since March. This movement further signals a changing investor sentiment, as they continue to find their way through a quagmire of economic uncertainties.
Looking abroad, other economic indicators around the world are sending mixed signals as well. In China, industrial enterprise profits fell 1.1% year-on-year over the first five months of this year. This drop represents a reversal of the increase that had continued for the past two months in a row. Such variability in industrial performance can have cascading effects on global supply chains and global economic stability.
Turning towards Sweden, recent data from the producer price index indicates a downward trend since the beginning of the year. This is the third consecutive month of negative year-on-year and month-on-month figures. The National Institute of Economic Research (NIER), an independent government agency, recently published its Economic Tendency Indicator. It has consequently tanked, falling from 94.5 to 92.8. Manufacturing fell from 100.1 down to 99.3. At the same time, retail trade plummeted, crashing down to 96.3 from 103.7.
Japan’s inflation data is front and center in the news today. Tokyo’s CPI, excluding fresh food, slipped back to 3.1% yoy, below expectations and down from 3.6%. Consumer inflations Core inflation is projected to slowly come down. It’s forecast to come in at 2.2% YoY, a decline from 2.3% last time around. This trend will affect monetary policy deliberations as policymakers weigh competing inflationary and deflationary pressures.
Norway is about to announce its unemployment statistics. It will release retail sales data, together with which we get a much clearer picture of the health of its economy. In the United Kingdom, Bank of England Governor Andrew Bailey addressed concerns regarding employment tax hikes, emphasizing their impact on pay and job availability rather than prices amidst ongoing inflation uncertainty.
According to Eurostat’s flash estimate, HICP inflation in the Euro area would increase to 2.0% year-on-year, from 1.9%. Almost all of this increase comes from soaring energy prices. This increase may not only shape central bank policies in our struggle to revive the global economy while keeping inflation at bay.