Consumers Didn’t Get the Memo

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The Federal Reserve looks set to deliver a rate cut on July 31 as potential insurance against global economic weakness. Someone forgot to send U.S. consumers the memo about a slowdown, however. Retail sales popped again, up 0.4% in June, and up a whopping 0.7% if gasoline sales are stripped out. (This is because gasoline prices fell in June, another positive for consumers.) June is the fourth straight month of retail sales increases and bodes well for 2Q19 GDP reports. Consumer spending offers a clear window into the U.S. economy, as it accounts for more than two-thirds of U.S. GDP. Although consumer spending is up, so are household savings rates – hovering around a solid 6%.

Meanwhile 2Q19 earnings season has kicked off with more than 80% of the 66 companies to report so far having beaten expectations. Our expectations for 2Q19 earnings call for continued positive growth on the back of record high levels last year. Sure, building permits and housing starts reported lousy numbers yesterday, but the Philadelphia Fed’s July Manufacturing Business Outlook Survey was a blowout, positive surprise, hitting the highest activity levels this year. Good news is outweighing the negative. The Fed may be worried, but for now consumers are sending the slowdown memos to spam and enjoying a summer of spending.

Please watch retail sales on page 12 of the Global Perspectives book and read the Global Perspectives Midyear Update.

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