“After a soft Q1, US data exhibits renewed vigour; data surprises could turn more positive,” argue Standard Chartered analysts and add: “Cyclical indicators – wage trends, credit conditions – still look supportive of expansion and external volatility aside, domestic data justifies continued normalization in US monetary policy.”
Key quotes
“Q1 US data experienced somewhat of a lull, but Q2 prints so far point to a notable pick-up. The May payroll report showed job creation spread broadly across major sectors and the unemployment rate at a 1969 low. Wage pressures have been frustratingly sluggish in recent years. But they are building and spreading across skill sets. The combination of tightening labour markets and the drift higher in consumer inflation expectations could keep wage pressures rising; we still see average hourly earnings (AHE) at 3% by year-end.”
“Other cyclical indicators have yet to signal an imminent downturn, though we remain watchful. 2018 growth is likely to outpace 2019-20 as fiscal support fades and monetary policy normalises. For now, credit conditions remain supportive and broader debt impairment metrics show limited signs of the deterioration that preceded previous downturns.”
“This suggests that the current expansion likely has several more quarters to run before current tailwinds subside more materially. Given this immediate backdrop, we argue that the Fed can continue to normalise policy rates, with three more rate hikes in 2018 and likely two more in 2019.”
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