Summary:
- Real consumer spending may rise by 3-4% in the current quarter, driven by positive early retail sales data and potential restocking.
- Federal Reserve Chair Jerome Powell expected to remain data-dependent, considering upcoming economic reports.
- Dislocation in rates attributed to an improved growth outlook.
- China's growth slowdown unlikely to have a significant impact on the US economy.
- Inverted yield curve's significance acknowledged, though its predictive power might have weakened.
JPMorgan's chief US economist, Mike Feroli, discusses the prospects for consumer spending and economic growth in the third quarter. Despite a strong start and positive data, uncertainties remain.
Mike Feroli of JPMorgan, a prominent economist, suggests that real consumer spending could see a notable increase of 3-4% in the current quarter. The early data for the third quarter is limited, but the recent retail sales report indicates a favorable outlook for consumption. Feroli points out that lean inventories could lead to restocking, further contributing to growth. However, he emphasizes the need to exercise caution regarding estimates in the early stages of the quarter.
Feroli also notes that July's consumption data is promising and implies a robust month for real consumption. He remains optimistic about the labor market's stability, as reflected in indicators like jobless claims. While addressing the possibility of Federal Reserve Chair Jerome Powell adopting a hawkish stance, Feroli expects Powell to remain data-dependent, especially considering the upcoming August payrolls and CPI report. Feroli suggests that the recent combination of improved growth and softer inflation may not necessarily lead to immediate rate hikes.
Discussing the dislocation in rates, Feroli attributes a significant portion of the phenomenon to the improved growth outlook in recent weeks. He views the uptrend in rates as aligned with the cycle's highs, considering the positive growth trajectory.
In the context of global economic dynamics, Feroli downplays concerns about the spillover effects of China's growth slowdown on the US economy. He explains that China's status as a relatively minor export market for the US mitigates the impact. On the flip side, he suggests that the deflationary effects of China's slowdown might contribute to a softer goods inflation narrative in the US.
Regarding the inverted yield curve's implications, Feroli acknowledges its historical significance as a recession indicator. While the curve's steepening may not be as strong a leading indicator as in the past, Feroli maintains that it remains relevant in assessing recession risks for 2024.
In summary, JPMorgan's Mike Feroli projects a potential 3-4% increase in real consumer spending for the current quarter, driven by positive early data and the potential for restocking. Despite optimistic growth and stable labor market indicators, he anticipates Federal Reserve Chair Jerome Powell will remain cautious in his policy approach, waiting for more data before making significant decisions. Feroli also discusses the dynamics of interest rates, China's impact on US inflation, and the role of the yield curve in predicting economic shifts.