Macro Weekly Data moving our way
Group Economics
Han de Jong +31 20 628 4201
12 June 2015 Recent economic data has been more in line with our views on the global business cycle than in the last couple of months. US and Chinese data in particularly have started to improve. Japanese data is also firming while the eurozone economy continues to do nicely. The implication is that we can feel more confident that the Fed will hike rates in September, as we have been forecasting for some time. Relief
readings have been better than expected and the rising trend
Our (and your) patience and confidence in our view on how the
is now back in place.
business cycle in the main economies would develop in the course of the year has been tested in recent months. The
Arguably more importantly, US retail sales improved sharply in
optimistic view has been challenged, especially in the US
May. Disappointing consumer spending had been a key
where economic data has consistently undershot expectations
element in a negative narrative. Despite improving incomes
since the beginning of the year. Fears over developments in
and increasing spending power due to lower fuel prices, the
China have also risen as the growth slowdown continued. And
consumer 'did not spend'. The key explanation offered by
with the US and China disappointing, it looked only a matter of
commentators was that households used the extra spending
time for the eurozone recovery to be impacted and for us to be
power to reduce debt levels. Not a bad thing in itself, but not
forced into sharp negative adjustments to our view on the
good for spending and growth in the short term. The May data
global economy.
showed retail sales were up 1.2% mom (April revised from 0.0% to +0.2). Excluding auto and gas, sales were up 0.7%
US NFIB index (small business optimism index
mom. Of course, one data point does not make a trend, but we are encouraged. To me, this improvement makes sense. We
index
must bear in mind that retail sales can be volatile in the short
100
term and hard to explain swings regularly occur. It is better to look at the trend and at the factors driving sales. These factors
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continue to be positive. Indeed, various labour market statistics released in recent days point to continued strength. The
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preliminary June reading on the University of Michigan's index 85
of consumer sentiment also showed a significant improvement.
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We have long taken the view that the Fed would start raising rates in September. This is not an easy call. There are a lot of
Source: Bloomberg
uncertainties around the tightening process. I compare it to a journey the Fed is going to take. But many things are unclear.
Recent data has come as a relief. In the previous week, US
What is clear is that they cannot stay where they are forever.
auto sales and the US employment report already were strong.
The direction of their journey is also unambiguous: rates must
During the last couple of days a few more indicators have
go up. Unfortunately, it is unclear where exactly they need to
supported our optimism. Confidence among small businesses
go to and when exactly they need to arrive. They only other
rose convincingly in May. This indicator had refused to improve
thing that looks certain is that they cannot travel very fast. In
much during the 2010-2013 period. It suggested that growth in
such a situation deciding on when to start the journey is a bit of
the US economy was vulnerable as it was not spreading to
a guess. Indeed, it seems that the FOMC is divided on the
small businesses, a crucial ingredient in the economy. But an
issue. However, the key people on the FOMC seem
improvement started in 2014. The trend was reversed during
determined to start the journey within the next couple of
the first couple of months of this year, but the April and May
months. And they have given guidance to that effect.