Today's Initial Claims data were surprisingly soft and tomorrow's April Retail Sales data could be, as well. So far today, the data have had only a small impact, if any, on Treasuries and stocks. The markets may be taking them in stride because it is not clear whether they are signaling a continuation of sluggish economic growth.
Initial Claims
The 20k w/w jump in Initial Claims to 294k could be an important signal that sluggish economic growth is continuing in Q216 -- particularly since it is the 2nd large w/w increase in a row. But, the upturn could be a lagged result of the sluggish growth in Q116. Slower job growth in Q216 also could be a lagged result.
Retail Sales
Consensus looks for +0.7% m/m Total and +0.3% Ex Auto Retail Sales. The rebound in motor vehicle sales and higher-priced gasoline sales are probably largely behind the forecasts. But, the cold weather last month likely hurt sales of apparel and other seasonal goods -- which could help explain the weak profit warnings by Macy's and other retailers. Also, Retail Sales data tend to slow after several months of strength. Ex Auto/Ex Gasoline Sales were strong in February and March, and a slowdown in April would not derail a good-sized q/q gain in Consumer Spending. Indeed, the Atlanta Fed's GDP Model looks for 3.0% (q/q, saar) Real Consumption Growth in Q216 at this point.
Big Picture and the Fed
The upturn in Claims does not eliminate the possibility of a speedup in GDP Growth in Q2 -- especially since their improvement in Q116 did not signal the slowdown then. The latest Fed model projections for Q216 Real GDP are 2.2% (q/q, saar) by the Atlanta Fed and 0.8% by the NY Fed.
Nevertheless, a weaker labor market should stop Fed officials from saying that this market is a stand-out area of strength in an otherwise sluggish economy.
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