A pair of economic reports out today offer another dose of data for thinking that modest growth will continue to dominate the macro outlook for the foreseeable future. Retail sales rebounded handsomely last month after a weak gain in April. Meanwhile, initial jobless claims dropped by a robust 12,000 last week to a seasonally adjusted 334,000, which is close to a five-year low. Business cycle risk, in short, still looks contained.
As for today’s numbers, let’s start with retail sales. Consumer spending advanced 0.6% last month, up sharply from April’s tepid 0.1% rise. May’s gain is the highest since February and the increase was fairly broad based. The cyclically sensitive realm of auto sales led the way, climbing 1.9% last month.
More importantly, the year-over-year trend in retail spending still looks healthy. Sales increased 4.3% last month vs. the same level from a year ago. By the way, that’s the second month in a row that the annual rate inched higher, which implies that Joe Sixpack’s capacity to spend remains intact. The key point is that the spending pattern looks relatively stable at a modest growth rate.
Today's release on new filings for unemployment benefits also brings encouraging news. Initial claims fell last week to 334,000, or near the lowest point since January 2008.
The trend looks especially upbeat when we consider the year-over-year decline in claims on an unadjusted basis (i.e., before seasonal adjustment). By this standard, last week’s 12% fall from the year-earlier level is one of the biggest declines so far this year. The message, of course, is that the economy continues to create new jobs on a net basis, which is a solid source of support for anticipating that the economy will continue to expand.
Recession risk, in other words, is still fairly low. There’s been some wobbly data in recent months, but the dark spots look like outliers at this stage. If you focus too narrowly on the numbers du jour, it’s been easy to think that the cyclical jig is up. But keeping our eyes on the prize, so to speak — the broad trend — has continually told us otherwise. That was the message in yesterday’s update of the Macro-Markets Risk Index, and it’s also the dominant signal based on a broad profiling of economic data via the Economic Trend & Momentum Indexes, which I’ll update next week.
Don’t confuse any of this with the idea that the potential for trouble going forward is low. Quite the contrary, for any number of reasons. But when the business cycle eventually stumbles in a meaningful way, the warning will reveal itself in due course and you’ll read it about here. There have been some relatively close calls in recent history, or so a handful of indicators implied. Quick judgement on the whole by narrowly focusing on a select number of the parts inspired some analysts to go off the deep end with predictions of doom. But the numbers overall never supported the darkest forecasts. The good news is that the same holds true today, based on the available data.