US: Strong economy - RBS

The US economy has stood relatively strong just as data from the UK and Eurozone has wobbled of late and so the Federal Reserve chose to strike a quietly confident note in its latest interest rate decision, according to analysts at RBS.

Key Quotes

“The rate setters didn’t actually change interest rates, they’d done that at the last meeting back in March when they put the Federal Funds rate up to 1.75%. The focus this time was on their interpretation of what has happened since. A strengthening labour market, buoyant business investment and inflation edging towards the 2% target was enough to warrant “further gradual increases” according to the FOMC. Lets hope renewed high oil prices don’t take too much cash away from consumers.”

“The US manufacturing ISM slipped from 61 to 57.2 in April, with some anecdotal reports that the escalation of protectionist threats may be weighing on activity. But the reading is still a strong one. And the similar Markit PMI hit a three-year high. It was a comparable story on the services side. The reading was down, but still in line with the 2017 average and it points to a stronger pace of growth in Q2 compared to Q1. Less positive was the productivity report, which registered a meagre 0.7% annualised figure and keeps trend productivity growth in the US on the disappointing side.”

“If US manufacturers are concerned about protectionist measures their rates of hiring belie such an anxiety. Manufacturing payrolls rose 24k in April and have averaged 28k over the past six months – the strongest streak in 20 years. Payrolls as a whole rose 164k during the month, below expectations but better than the 135k in March. The unemployment rate hit a new low of 3.9% (from 4.1%), the lowest since December 2000. Wage growth was unchanged at a muted 2.6%y/y. But that isn’t something that will dissuade the Fed. Other wage indices point to building pressures, albeit gently.”