As we await the all-important FOMC meeting, it’s a good opportunity to remind everybody that the Fed looks through the weakness in Q1 and cheers up on the encouraging data for Q2. But apart from growing evidence of the “transitory” nature of Q1, it’s important to note that perhaps the first quarter was not as bad as previously perceived.
Here are a few things to note:
- Retail sales: The latest retail sales report for May was encouraging and also came on top of an upwards revision for April. In addition, it carried an upwards revision for March, the last month of Q1. So, if consumption, a major component in the US economy was actually better, we might have only minimal contraction.
- Upgrades to durable goods orders: Core orders reflect investment, a component that is critical for future growth. For long months, core orders dropped and caused worry, similar to the frustration from retail sales. The eventual revisions were somewhat lost in the influx of economic data. Even if the influence on GDP will likely be minimal, the Fed can certainly be encouraged.
- General revisions coming: The Bureau of Economic Analysis (BEA) makes significant general and historical revisions to GDP on July 30th, together with the release of the initial Q2 GDP estimate. And this time, they are expected to consist of an upwards revision to Q1, due to a change in the calculation method.
Contrary to markets that focus on the latest news, the Fed looks at the broader picture. This is relevant for employment, where it also eyes the JOLTs report (the last being excellent) and also regarding GDP growth.
Will see a more upbeat Fed and not the regular dovish tone?
In our latest podcast, we bring you up to speed with the Fed decision and the USD impact, and also tackle the Greek crisis from two different angles.
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