The first revised U.S. Q1 GDP data was published last week, confirming that the economy expanded 6.4% on an annualized basis. The one major correction made was to the consumer durable goods orders that expanded in Q1 at an astounding rate of 48.7%, versus the initial data of 41%. Some downward adjustments were made to non-residential durables, business equipment, and most notably to exports. The latter was revised to -2.9% from previous -1.1%, confirming that U.S. trading partners have been importing less, partially due to slower economic recovery, and somewhat stronger dollar in the first quarter.
The bolstering effect of stimulus from the government is obvious when reading the GDP data – real disposable incomes were up 62% at an annual rate but stripping out government transfers to individuals, this print would have been flat and unlikely that we would have seen such an explosion in consumer durable spending. This begs the question – where should the growth in coming quarters stem from? As we know, the direct stimulus payments are rolling over with some states ending the programs before the September deadline. With less free cash on their hand, are the consumers going to continue their spending spree as we have seen earlier this year? It seems unlikely that the same money will be spent on things but in all likelihood, we are going to see an increase in spending on services as the U.S. is opening up for the summer.
September can’t come soon enough for market observers – a number of catalysts for labor markets are becoming inevitable just after summer. As we know, non-farm payroll data was a huge miss last month when only 266,000 jobs were added whilst the consensus expected around 1 million new jobs. After some analysis it seems that the problem seems to be in labor supply, and specifically – an artificial lack of labor supply. It’s artificial since in reality there are enough people for the roles that are currently vacant – there are still around 10 million people who are unemployed in the U.S. and around 16 million who are at least on one benefit program.
However, the reasons why there are 8 million openings according to JOLTS data, despite millions of unemployed people, are largely due to a) benefit programs b) early retirements c) concerns about health and workplace safety, and d) lack of childcare as schools have been closed. With benefit programs ending in September and schools re-opening at the back of aggressive vaccination program, two of these factors are expected to be mitigated. Even with the services industry opening up over the summer, the labor market is likely to remain weak, potentially pushing the dollar further down and equities markets up as the investors know – the Fed cares only about the labor market at this point. Keep an eye on the non-farm payroll data this coming Friday as we expect another surprise.
The dollar, measured as DXY, has been moving sideways, consolidating near US$ 90.1 levels since mid May. There could be an attempt to re-test the 90.45 resistance level once again, similar to what we saw last Friday when Fed’s preferred inflation measure, Personal Consumption Expenditures Index, exploded to the upside. But technicals are all suggesting further weakness in the Greenback for the upcoming days and weeks.
S&P 500 closed last week up 1.16% to 4,204.12, while Nasdaq-100 rose 2.05% to 13,686.51 points. Russell 2000, representing U.S. small and medium companies, was gained 2.42%. The dollar index DXY was largely flat, gaining 0.03%, continuing its rangebound move. Gold closed at 6-month high of 1,903.45, up 1.18% last week. Oil rose 4.31% to US$ 66.60, supported by strong U.S. economic data.
Have a great trading week ahead!