US growth does not pick up as much steam in Q2 as hoped - Rabobank

Bas van Geffen, Quantitative Analyst at Rabobank, suggests that there continues to be doubt about the reacceleration of the US economy, after recent mixed signals.

Key Quotes

“Although the business surveys in the services sector have been pointing at some renewed optimism, we noted that manufacturing optimism –with its fate tied more closely to external developments– continues to be subdued. In more tangible data, weekly jobless claims have been increasing for a few weeks in a row now, from its early-April lows. Yesterday’s data showed initial jobless claims were up to 294,000 last week. This could indicate some weaker hiring in the US labour market.

Regardless, or maybe because, of the potential that US growth does not pick up as much steam in Q2 as hoped, the FOMC hawks are becoming somewhat more vocal again. Of course, Esther ‘rate-hike’ George reiterated yesterday that she favours raising interest rates. However Eric Rosengren pitched in as well, indicating that “the market remains too pessimistic about the fundamental strength of the US economy”, adding that he thinks “[the FOMC] should be gradually removing accommodation”.

However, if the economy does not gain enough traction to convince the more moderate voters, the hawks could lose out in a June vote. Perhaps today’s retail sales or PPI inflation strengthen their case. A pick-up in producer prices could be interpreted as an early signal of broader price inflation and might thus entice markets to (slightly) up their odds of a June hike again.”