MNI US Macro Weekly: Jury’s Still Out On Q2 Downturn

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EXECUTIVE SUMMARY

• While the past week may be remembered for court decisions suspending the majority of the White House’s tariffs, it also brought further data evidence that the US economy did not fall off a cliff at the start of Q2.
• Consumer surveys (UMichigan, Conference Board) showed a downtick in consumer inflation expectations and improved sentiment, reflecting the US-China trade de-escalation on May 12.
• And while updated GDP data showed downwardly revised Q1 domestic demand, April personal consumption slowed but remained positive as underlying income growth remained solid.
• Likewise, though core durable goods orders retreated from Q1, a clear dropoff at the start of Q2 was not in full evidence. Regional Fed surveys signaled that activity stabilized in April-May, albeit at relatively weak levels, and labor market data pointed to incremental rather than sharp weakness.
• The point was underlined by the Atlanta Fed's nowcast for Q2 GDP growth which jumped to 3.84% on Friday from 2.18% in its May 27 update. Even if dramatic upgrade was due to a lower trade deficit in April as tariff front-running reversed, final domestic demand is still expected to be robust overall.
• Of course, things can change quickly: note Friday’s apparent re-escalation in US-China trade tensions and the temporary nature of the judicial tariff freeze (which in any case looks to be circumvented by the Trump administration), as well as the July “reciprocal” tariff negotiation deadline continuing to loom large.
• For the moment though, while uncertainty looks to be a constant, the data aren’t (yet) showing the degree of deterioration that had until recently been feared.
• Next week’s data highlights include key checkpoints for May, including ISM Manufacturing and Services surveys (which look likely to show some recovery versus April) and the US Employment report.
• Nonfarm payrolls growth is expected to moderate in May after a surprisingly robust 177k in April, with consensus currently around the 130k mark. The unemployment rate meanwhile is seen holding at 4.2% for what would be a third consecutive month.