US economy to demonstrate that the headwinds were transitory - BBH

In view of the analysis team at BBH, after the poor Q1 GDP, the onus is on the US economy to demonstrate that the headwinds were transitory and that is what BBH expects to be delivered in the main two economic reports this week: retail sales and CPI.  

Key Quotes

“Consumption was particularly weak in Q1.  The foundation for better consumption is income, and that means wages/salaries and transfer payments remain intact.”

“If consumption is going to increase, then the first place to look is retail sales.  A 0.5%-0.6% is expected after a 0.2% decline in March.  In part, this will reflect the increase in gasoline prices.    The components that are used in GDP calculations are expected to be rise by 0.4%.  That said, the average core retail sales rose an average of 0.23% in Q16, while they averaged 0.27% in Q1 17.  Personal consumption expenditures rose 3.5% an annualized rate in Q4 16 but only a miserly 0.3% in Q1 17.”

“Consumer prices appeared to have increased in April after softening in March.  The headline may increase 0.2% after a 0.3% fall in March.  The year-over-year rate could edge lower to 2.3% from 2.4%.  The core rate is expected to increase 0.2% after easing 0.1%.  This would keep the year-over-year rate steady at 2.0%.”

“The markets did not react much to the passage of health care reform by the House of Representatives.  It was to free up funds that could ostensibly be used to fund tax reform.  The S&P 500 edged to new record highs before the weekend, but this seems to be part of a global move and not a US-specific driver.  In fact, the only G7 market to do worse than the S&P 500 0.6% gain was Canada's where the TSX was off 0.3%, after a 1.2% rally before the weekend.”