Today's US Economic Data Point to Stronger Growth and Contained Inflation

Today's data on Unemployment Claims provide more evidence that economic growth is picking up in Q216.  Meanwhile, the low March Core CPI shows that inflation remains in check.  A pickup in Q216 Real GDP Growth will not likely convince the Fed to hike rates in June, as the speedup could be just a one-off catch-up after a dismal Q1 -- similar to the pattern seen in the past couple of years.

Both Initial and Continuing Claims resumed their downtrend in the latest week, falling to below their March averages (see table below).  These data are more significant when both tell the same story.  So far, the Claims data and the ECRI Leading Index indicate a speedup in Q2 GDP Growth.

While yesterday's report of soft March Retail Sales data got the headlines, the true import of the release was that the underlying pace of consumer spending was better than had been reported earlier - - thanks to a large upward revision to February sales.  Also, some of the March weakness was in components that do not feed into Consumer Spending data.  It is telling that the Atlanta Fed GDP model raised its projection of Q116 Real GDP Growth to +0.3% (q/q, saar) from +0.1% after taking account of the Retail Sales data.

      a.   Note that the NY Fed has begun issuing a current-quarter GDP model projection, like the Atlanta Fed's model.   The NY Fed model projects +1.1% for Q116.  A proliferation of current-quarter GDP model projections emanating from the Fed will just make for confusion.

The low +0.1% m/m increase in the March Core CPI shows benign inflation for most key components.   There was an unwinding of the February jump in apparel prices that held down the Core by 0.1% point, however -- and it could have been partly a result of (temporary) discounting ahead of the early Easter.  A 0.2% m/m The Core PCE Deflator cannot be ruled out, particularly after it was held down in February by some volatility in components that are independent of the CPI.

                            Initial Claims                        Continuing Claims
Latest Week           253k                                      2.171 Mn

March Avg             264                                        2.184

Feb     Avg              261                                        2.227            

Jan     Avg              282                                        2.239