The soft patch may be over. The latest batch of economic indicators is certainly more upbeat than previous ones. Most importantly, I am impressed with May’s 0.6% m/m increase in our Earned Income Proxy (EIP), which is highly correlated with wages and salaries in the private sector. It’s also highly correlated with retail sales excluding gasoline, though the two series have diverged so far this year, with the latter lagging the former.
A sharp rebound in May retail sales would confirm that the soft patch is over. May auto sales did rise to 17.8 million units (saar), the highest since July 2005. We still have some concerns that rapidly rising tenant rent and out-of-pocket health care costs may be offsetting some of the positive impact of our rising EIP. May’s retail sales will be reported this Thursday. An upbeat housing-related indicator was April’s Pending Home Sales Index, which rose to the highest level since May 2006. It tends to be a good leading indicator for existing home sales.
And, of course, there was plenty of good news in Friday’s employment report. Most impressively, full-time household employment rose by 630,000 during May, having risen 2.6 million over the past 12 months. While wage gains remain relatively subdued around 2% on a y/y basis, the latest three-month changes are mostly around 3%, on average, at an annual rate.
Today's Morning Briefing: Peter Pan. (1) By the shores of Lake Winnipesaukee. (2) Seven strategists and economists with seven opinions. (3) Consensus vs. contrary scenarios. (4) Kuroda says we can fly if we believe we can. (5) Japanese inflation close to zero again despite all the pixie dust. (6) Draghi plays Captain Hook. (7) Less deflation, more growth in Eurozone. (8) Dudley: On your mark, get set, wait. (9) Fed policy is market dependent too. (10) Is the US soft patch over?
