Economic Outlook: Cloudiness with Chance of Clearing?

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Special Guest Blogger: Daniel Wang

Recent U.S. expectations reports have shown a bit of life: the University of Michigan’s (UMich) indexes of consumer expectations and inflation expectations, the Bloomberg indexes of consumer comfort and economic expectations and the Philadelphia Federal Reserve’s manufacturing business outlook were all positive. Preliminary U.S. Markit PMI data for July printed at levels congruent with trend U.S. growth, but still soft.

Consumers are still reacting to the good labor market. Retail sales data show three-month growth rates are higher than twelve-month growth rates. For example, sales less autos and gasoline were up 7.4% over three months, versus 5.2% over twelve months. Similarly, the headline sales rate was up 5% versus 3.4%. The Atlanta Fed GDPNow PCE forecast continues to move higher. For the Fed outlook, UMich five–ten year inflation expectations rose from 2.3% to 2.6%.

The trade related downturn in manufacturing has hit Europe hard, with Eurozone Aggregate PMI sliding from 55 to 47.5 over the past year. Recent IP data are showing a stabilization at that level. These data indicate that the slowdown may be ending. Importantly, European Composite PMI is turning up and the market expects the European Central Bank to ease in September.

For background on manufacturing and consumer spending, please pages 9–13 of the Global Perspectives book.

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