Payden & Rygel: US retail sales and Initial Jobless Claims data

16 augustus 2024

Verenigde Staten

Great news on the economic data front this morning--just not for the bond market or anyone calling for urgent, substantial reductions in the fed funds rate.

First, retail sales beat consensus estimates across the board, suggesting the indefatigable U.S. consumer continues to spend in July. While only ~30% of total consumer spending, July's figures should help current-quarter growth. We continue to anticipate 2-3% GDP growth in coming quarters (i.e., NOT a recession!).

Second, initial claims dipped back below 230k in the latest weekly release. Continuing claims also dipped slightly. We think the labor market is the BIGGEST X factor here--almost every bear or Fed dove we to talk to points to labor market weakness as THE reason for a rapid rate cutting pace in coming quarters. But, what if the labor market is not as weak as the doves purport? What if the unemployment rate follows initial claims and ticks down in the months to come?

The bottom line is that nothing we've seen this week supports an urgent need for a 50-bps rate cut. If the inflation data continue to moderate, 25 bps could be warranted in September.

You're seeing a swift market reaction in the front end of the U.S. bond market, with a spike in 2-year yields on the data releases.

We (Payden Econ Team + Rates Strategy) still think too much easing is priced in over the next month, into year end, and into mid-2025, so there is still room for further market adjustment.