The U.S. economy released a bunch of major reports last week so it’s about time we do a quick rundown of how the data turned out and what it means for the U.S. dollar. After all, the Greenback has been reacting to fundamentals in the past few months, with strong data typically providing support for the U.S. currency.
In this roundup, I’m gonna focus on the following components of overall economic performance: consumer spending, inflation, manufacturing, and housing demand.
Consumer spending makes up roughly two-thirds of U.S. economic activity and the retail sales report acts as a gauge of this growth component. For the month of April, both headline and core retail sales fell short of expectations, despite the stronger than expected hiring gains in the same month. Headline retail sales printed a mere 0.1% uptick instead of the estimated 0.5% increase while the core figure stayed flat instead of rising by 0.6%.
The good news though is that the previous month’s figures were revised higher to show a 1.0% jump in core retail sales and a 1.5% gain in the headline reading. However, optimism in the consumer sector weakened in May as the preliminary consumer sentiment index reported by the University of Michigan fell from 84.1 to 81.8, suggesting that further weakness in retail sales might be in the cards.
Inflation, which is usually measured using the CPI, turned out mostly in line with expectations for the month of April. Core CPI showed a 0.2% increase, unchanged from the previous month’s reading, while headline CPI printed a 0.3% gain in price levels.
Producer price inflation, which is gauged through the PPI figures, hinted of stronger inflationary pressures down the line. The headline PPI for April showed a 0.6% rise while the core PPI had a 0.5% uptick, suggesting that these increases in input prices could soon translate to higher product prices.
Manufacturing data was also promising, with both Empire State and Philly Fed manufacturing indices posting better than expected results for April. The Empire State manufacturing index surged from 1.3 to 19.0, outpacing the consensus at 5.5. Meanwhile, the Philly Fed index dipped from 16.6 to 15.4, but it was still higher than the estimate at 13.9.
You see, a positive reading for these manufacturing indices means that the industry is expanding. Increasing readings suggests that activity keeps picking up while falling readings means that the manufacturing sector is slowing down. Consistent gains in manufacturing could eventually lead to more hiring and investment, as companies employ more resources to keep up with rising demand.
The U.S. housing sector also saw stronger than expected data for April. Building permits, which is the annualized number of new residential building permits issued, surged from 1.00 million to 1.08 million. Housing starts, which accounts for the annualized number of new residential buildings that already began construction, climbed from 0.97 million to 1.07 million.
These latest housing figures reflect the return of builders to work sites after the extremely cold weather conditions weighed on construction activity earlier this year. Analysts expect to see further gains in housing demand, as jobs growth keeps improving and lending gains momentum.
In a nutshell, it appears that the latest round of data is painting a pretty rosy outlook for the U.S. economy. Do you think this could keep the U.S. dollar supported in the next few months?