The US consumer did not renege on May’s promise in June. Retail sales added 7.5% last month following the 18.2% burst in May, giving the two months a 25.7% gain, more than the 22.9% loss in March and April.
Retail sales
FXStreet
Durable goods orders followed suit scoring 15.8% in May after losing 18.3% in April and 16.7% in March. That pace is expected to moderate to 6.5%in June though there is room for improvement, the May consensus estimate of 10.9% was understated by 44%.
Order outside of the transportation sector are expected to rise 3.5% after May’s 3.7% increase and a combined 10.1% loss in March and April. Non-defense capital goods ex-aircraft, a proxy for business spending, is predicted to climb 1.5% in June after the May 1.6% gain and March and April’s 7.9% loss.
Consumers have given an excellent account of themselves since the lockdowns ended spending more in retail sales than the economy forfeited in March and April. As durable goods are a set of overall sales there is every reason to expect their totals in June to mirror the wider consumption.
The control group of retail sales, the government’s GDP consumption component rose a total 15.7% in May and June also more than compensating for the 12.4% drop in April—these sales rose 3.2% in March.
Despite the unexpected and forceful recovery in manufacturing and services purchasing manager’s indexes in June, to 52.6 from 43.1 and 57.2 from 45.4 respectively and the even stronger surge in new orders scores, 56.4 from 31.8 in manufacturing and 61.6 from 41.9 in services, business spending has not recovered to the same degree as its retail cousins.
Manufacturing PMI
FXStreet
The non-defense capital goods category of durable goods orders, a well-known proxy for business investment spending will have recovered less than half its pandemic losses if the June forecast is accurate.
Business spending fell 1.3% in March and 6.6% in April and rose just 1.6% in May. If the June increase is correct at 1.5% it will amount to just 40% of the combined 7.9%.
Business spending, durable goods
FXStreet
Business managers are clearly hesitant to commit scarce resources to investment and personnel until the direction of the economy is certain. The burst of consumption in May did not bring on a strong reply from managers.
It is possible that the continuation of heightened consumer spending in June may have unleashed business credit cards. But it also possible and probably more understandable, considering the recent trauma, that managers will be very cautious in hiring and investment.
The problem for the economy is that those spending decisions are the ones that return people to employment.
For markets and the dollar durable goods will likely provide little new information. Even if considerably better than the forecast it will only confirm the retail figures. If it is unexpectedly worse then the recent dollar selling will look prescient.
EUR/USD is trading around 1.16 after hitting the highest since 2018. Eurozone PMIs have shown a return to growth supporting the euro. US New Home Sales beat expectations but Markit’s PMIs missed. COVID-19 figures are awaited. Sino-American tensions remain elevated.
Gold has had another positive session and this could be the sixth consecutive day in a row the price has increased if the daily price stays in the positive. We would need to go back to 7th January to see the last time that happened.
GBP/USD is moving up toward 1.2800 after UK retail sales beat expectations with 13.9% in June. PMIs have also smashed estimates with the composite hitting 57.1 points. The safe-haven dollar is bid amid intensifying SIno-American tensions.
We all know Bitcoin has been trading sideways for the past three months. Ethereum was stronger but also trading sideways until a few days ago when bulls managed to create a massive breakout above $250.
WTI (futures on Nymex) has staged a V-shaped recovery from the daily low of 40.72, now looking to extend the pullback above 41.50.
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