As recent economic data out of the United States and Switzerland paint two very different pictures. Such differences may profoundly affect competitive market dynamics and potentially inform FOMC monetary policy deliberations in the months ahead. In July, US Retail Sales increased by only 0.5%. This increase represents a notable slowdown from last month’s upwardly revised 0.9% gain. Further, yearly growth slid to 3.9%, down from June’s 4.4%, an alarming omen for consumer spending. Global economy – Switzerland in danger National Bank president Philipp Hildebrand has warned that the Swiss economy is becoming increasingly vulnerable. In the second quarter, its Gross Domestic Product (GDP) increased by only 0.1%, a steep decline from the 0.8% growth rate in the first quarter.
As we noted last month, the United States’ recent retail sales figures point toward a consumer spending slowdown. The July uptick of 0.5% represents a cooling in growth relative to June’s revised 0.7% figure. The revision of that prior number had pointed to a better performance than expected. Consumer spending, as shown by retail sales, is up 3.9% over the last year. This is a slower growth rate than we experienced last month, signaling a possible sea change in consumer confidence and spending behavior.
This broader alarm may be unjustified given the slowdown in US retail sales. State tax collections represented a drop from June’s strong growth, analysts have warned. This change is probably indicative of consumers taking a more prudent tone as they deal with a host of inflationary pressures. These trends will be difficult for the Federal Reserve to ignore in its upcoming meetings. A 25 basis point increase in September is looking very probable now. With inflation measures surging, hopes for an extended easing cycle have evaporated.
Switzerland’s economy is going through a very difficult period at the moment. Its GDP growth has plummeted to just 0.1% in the second quarter. That prediction would be a steep drop-off from the 0.8% annual growth rate recorded in Q1. American economists attribute weakening external demand as the main driver of this slowdown. They further point out that US tariffs have imposed unnecessary burdens that damage the competitiveness of Swiss exports.
The imposition of tariffs on Switzerland’s economy would be extremely detrimental. Swiss manufacturers and exporters are beginning to sense the chill from an unpredictable world demand. They are weighed down by increased orders and inflationary costs that make their growth potential economically unfeasible. This unsustainable reality is once again shown in the latest GDP figures, as outside factors still plague the domestic economy and weigh down the cannery’s growing output.
Adding to economic uncertainty are inflationary pressures seen in the U.S. and around the world. The Producer Price Index (PPI) recently recorded its largest monthly gain since mid-2022, signaling potential price increases in the consumer market. The one-year inflation expectations jumped to 4.9%, up from 4.5%. At the same time, the five-year forecast rose to 3.9%, up from 3.4% last month.
One area of focus for the Federal Reserve and for good reason are long-term inflation expectations. These expectations are useful in determining our credibility and maintaining price stability across the economy. Changes in these perspectives can impact monetary policy decisions and eventually move the markets.
The currency market has responded to this new economic data especially in regard to the USD/CHF exchange rate. The pair plunged under 0.8050. With disappointing US data keeping the US dollar on the backfoot against the Swiss franc, the negative sentiment may be set to continue. Market participants eagerly await these groundbreaking developments as they adjust their expectations for future investment strategies and currency valuations.