Economic Highlights

More signs of “lift-off” for the economy as we re-open. Retail Sales volumes were +9.2% m/m in April, and +42.4% y/y, well ahead of expectations. There was a big increase in sales at clothing stores as the country prepared to socialise, with a 69.4% jump. The strong rebound in the consumer economy was also displayed in Gfk consumer confidence data, with the index jumping 6 points to -9 in May. Respondents' perception of the economic situation over the next 12 months was key to the gain, with the sub-index jumping from -11 to 4, the highest number since 2015.

Although overall economic surprises appear to have peaked in the US for now, the underlying trend in growth remains firm. This was reflected in a new post-COVID low (444k) for weekly claims for unemployment benefits, as well as in another healthy PMI print, with the Composite measure rising from 63.5 to 68.1, largely driven by the Services element as states continue to relax restrictions. Federal Reserve meeting minutes suggested that members might finally be thinking about thinking about (sic) when the time might be right for considering some policy tightening, but all speakers continue to be committed to the message of loose policy for the foreseeable future.

A similar upbeat message in Europe, with the Composite PMI rising from 53.8 to 56.9, again ahead of expectations, and the highest reading for more than three years. New Orders hit their highest levels since 2006, and overall business optimism was the best since 2012. Slightly more concerning is the fact that uncompleted orders are at their highest since the this series of data began in 2002, further evidence of supply chain bottlenecks in the face of strong demand.

Q1 GDP disappointed by falling 1.3% q/q (f/c -1.1%), although the miss was entirely explained by a fall in mobile phone contract prices, something which has been “encouraged” by the government. Better news for consumers, one might think. It reminds us that GDP is a pretty blunt instrument as a measure of economic activity, more suited to the days of greater reliance on manufacturing outputs.