Another Good Week for U.S. Economic Data
As we noted in last week’s Outlook report, the United States is seeing a solid rebound in economic indicators from the April lows that for the most part have exceeded economists’ expectations.
This week was no exception. Retail sales for May, the National Association of Home Builders Housing Market Index for June, and mortgage purchase applications through the first two weeks of June all handily beat consensus forecasts.
In fact, the positive U.S. economic surprises coming from the U.S. economic data is at the highest level in years as economic reopening push econometric models beyond their capability to forecast the extent of the gains from a near-zero starting point at the beginning of May.
The economic surprises coming from the rest of the world have been less impressive. After a brief period in positive territory, economic surprises for Japan and emerging markets have once again turned negative and the economic surprises coming from the Eurozone continue to seriously lag other regions of the world.
The World Bank, and OECD recently marked down their global growth forecasts for 2020 and 2021, and the IMF is expected to make similar downward revisions when they release their updated forecasts on June 24th.
Here in the United States we are going through a bit of an unsustainable moment as retail sales jump on widespread business reopening and pent-up demand. The expanded unemployment benefits and direct payments to American’s has helped keep more folks spending throughout this crisis, especially lower income folks whose propensity to spend their income is higher.
The added spending due to these government supports are likely to fade quickly if we don’t see them supplemented by further action from Congress. The May increase in retail sales for clothing stores (+188%) and furniture stores (+89.7%) and sporting goods (+88.2%) look impressive, but when one compares retail sales in May to a year ago that V-shaped recovery illusion quickly disappears.
In addition, despite the encouraging bounce in several sectors of our economy over the past month and a half, our economic future beyond the next few weeks will still largely be determined by the course of the coronavirus.
On that front, there is a troubling resurgence of new cases coming from more than a handful of states. The New York Times reports that as of yesterday, 20 states were experiencing rising cases over the past 14-days, including several large ones like California, Texas, Florida, South Carolina, and Georgia.
The U.S. had 27,000 new cases yesterday and this number has been consistently over 20,000 a day. The drop in new cases in New York state has helped keep the new case numbers down nationally down over the past month, but those days are ending fast. At this point, we don’t envision any widespread business shutdowns in the third quarter in our baseline forecasts, but if cases keep rising this could be a huge problem for continuation of economic growth by the fourth quarter.
Moreover, the impressive bounce in retail sales, housing, employment, and consumer and business confidence in May and June are still barely visible in overall economic activity when we compare it to last year’s pace. The New York Fed’s Weekly Economic Index improved to -8.4% this week, suggesting that U.S. GDP growth is still trending about 8.4 percentage points below last year’s levels. This is an improvement over the -11.5% pace seen in April, but reminds us how far we still need to go.
I am pleased to see such a quick turn in U.S. economic indicators off the April bottom, but I don’t have any illusions that it tells us much if anything about our economic future in the fourth quarter and beyond.
To find out more, check out this week’s U.S. Outlook.