- UK retail spending in May is projected to tumble 0.8%
- US jobless claims are on track to tick lower, close to multi-decade low
- Economists see US industrial output rising for a fourth month in May
A busy day of economic news awaits, including UK retail sales data for May, which precedes the Bank of England’s monetary announcement. Later, two US numbers will be widely read in the wake of weaker-than-expected retail spending for May: The weekly update on jobless claims and the monthly release on industrial activity.
UK: Retail Sales (0830 GMT): Unemployment in Britain held steady at a low 4.6% over the three months through April, but inflation-adjusted wages continued to slide, highlighting a risk factor for the economy in the months ahead.
Average wages increased 2.1% in annual terms, below the 2.7% rise in inflation, according to government statistics. As a result, real wage growth slumped 0.6%, the biggest decline since August 2014.
The red ink in wage growth raises concerns about the outlook for consumer spending, which has been decelerating in annual terms this year.
The ongoing growth for job creation will help soften the blow from the deceleration in wage growth, but the consumer sector appears on track to face stronger headwinds going forward.
Today’s report on retail spending for May is expected to reflect some of those headwinds. TradingEconomics.com’s consensus forecast calls for an 0.8% decline in the monthly change and a sharp slowdown in annual growth to 1.7%, a four-month low and far below the 4% annual gain in the previous month.
Previously released sentiment data also point to weaker consumer spending.
The Confederation of British Industry last month said that its survey figures for May show that inflation is pinching demand.
“Taken together with higher import cost pressures from a weaker pound, this is creating a challenging environment for retailers,” an economist at the group said late last month.
In theory. rising inflation suggests that the Bank of England is poised to begin raising interest rates.
Yet no change is expected in today’s monetary policy announcement (1100 GMT), in part due to concerns about economic growth.
A softer trend in retail spending in today’s release, which is scheduled for publication ahead of the BoE statement, will reinforce the view that squeezing policy to fight inflation isn't prudent at the moment.
US: Initial Jobless Claims (1230 GMT): Yesterday’s retail spending report for May was surprisingly weak, sparking fresh questions about the economy’s strength.
Retail purchases fell 0.3%, the biggest monthly slide in over a year. The year-on-year trend is still moderately positive, although the latest decrease pared the annual rate to a 3.8% rise, the softest gain so far in 2017.
A key part of the weakness stems from a hefty decline in sales at gasoline retailers. Ignoring this red ink translates to a flat month for spending in May.
For the moment, it’s reasonable to see the latest retail figures as noise. Today’s update on new filings for unemployment benefits looks set to reinforce that analysis.
Econoday.com’s consensus forecast calls for jobless claims to dip 2,000 to a seasonally adjusted 243,000 – close to a multi-decade low.
If there’s serious trouble brewing for the US economy, an early warning sign would probably show up in the claims data.
Based on expectations for today’s report, however, the worst you can say about the macro outlook is that modest growth remains the likely path for the near term.
US: Industrial Production (1315 GMT): Output in the industrial sector has been rebounding this year and analysts think that today’s hard data on output is on track to reaffirm that the revival’s intact.
Economist expect that production will rise 0.2% in today’s report for May, marking the fourth straight monthly increase – the longest continuous stretch of monthly gains since late-2014.
The implied one-year change also looks encouraging via output rising 2.5%, the highest in more than two years.
Note, however, that sentiment data for manufacturing, the main component for industrial production, has been slipping lately.
Markit’s US Manufacturing PMI fell to an eight-month low in May. "Manufacturing output, order books and employment all grew at only modest rates as sluggish sales prompted firms to scale back hiring,” said Markit’s chief business economist earlier this month.
The softer sentiment reading for May suggests that today’s hard data on industrial activity could fall short of expectations.
Disclosure: Originally published at Saxo Bank TradingFloor.com