Real consumption likely rebounded more than +4% annualized in 16Q2. Continuing income gains should deliver healthy cons. growth in 16H2.
AbstractRetail sales posted their third straight solid gain in June. The Advance GDP report in two weeks should show that real consumption grew at its fastest pace in a decade, up +4.4% annualized in 16Q2. With the non-farm inventory change component subtracting almost -1%, we expect that real GDP growth was about +2.25%. (Note, as usual at this time of year, the Advance report will incorporate the annual GDP benchmark; no significant changes to the history are expected). Given the tepid results in 16Q1, consumption appears to be trending near +3%; FMI expects this pace to be sustained into 2017, fueled by healthy jobs gains and the pick-up in wages growth. With the inventory correction largely complete, inventories should be a neutral factor going forward. The rest of the today’s June data was status quo. Manufacturing remains in the doldrums, but there are some hopeful signs. Mining has stopped its freefall. And inflation is a lot closer to the +2% target than the Fed is willing to admit.