All US Fundamental Indicators Point to A FED Policy Reversal - Forex News by FX Leaders
Inflation is increasing, as purchases pick up

All US Fundamental Indicators Point to A FED Policy Reversal

Posted Saturday, May 29, 2021 by
Skerdian Meta • 3 min read

The US economy was the first to start rebounding after the recession in spring last year due to coronavirus lockdowns. The global economy started rebounding as well in summer, but last winter we saw another period of weakness in the global economy as restrictions returned and in some places like Europe we saw another contraction.

Although, the US economy held up well and it has picked up further speed in 2021. All indicators are at all time highs or close by now, confirming the strong momentum in the US economy. The FED has been trying to play the data down, but it keeps getting better, so the FED will have to accept it soo, especially as the summer months are expected to be even stronger.

The USD is giving some signs of reversing higher, but the reversal will come once the FED rhetoric gives the first signs of change, which will be a good time to buy the USD. Below are some reports which show that, like the Q1 GDP report and the PCE inflation report.

US initial jobless claims in continuing claims.

Initial jobless claims
  • US initial jobless claims 406K vs 425K estimate
  • Prior report 444K unrevised. That was the lowest since March 14, 2020
  • Initial jobless claims 406K versus 425K estimate. Down 38,000 and the week
  • 4-week moving average of initial jobless claims 458.75K vs 504.75K.
  • Continuing claims 3,642K vs 3,680K estimate.
  • 4 week moving average of continuing claims 3,675K vs last week’s 3,677.75K.
  • During the week ending May 8, 51 states reported 6,515,657 continued weekly claims for Pandemic Unemployment Assistance benefits and 51 states reported 5,191,642 continued claims for Pandemic Emergency Unemployment Compensation benefits.  Last week 51 states reported 6,605,416 claims and 5,141,311 continued claims.
  • The largest increases in initial claims for the week ending May 15 were in New Jersey (+4,812), Washington (+3,023), Minnesota (+1,806), West Virginia (+907), and Rhode Island (+792),
  • The largest decreases were in Georgia (-7,392), Kentucky (-7,123), Texas (-3,881), Michigan (-3,560), and Florida (-2,994).
The number is the lowest since March 14 2020, just before the pandemic surge. That level was at 256K. The claims data continues to move steadily to the downside. There are expectations  that once the Covid employment benefits lapse in September, that the weekly claims data will fall even more sharply as those choosing to receive government aid instead of working, decide to go back to work.

US Q1 GDP Second Estimate

US GDP long view

 

First reading was +6.4%

Final Q4 reading was +4.3%

Personal consumption +11.3% vs +11.0% expected

GDP price index +4.3% vs +4.1% expected

Core PCE +2.5% vs +2.3% expected

Details:

Core sales excluding motor vehicles +6.5% vs +6.6% prelim

Final sales +9.4% vs +9.2% prelim

Inventories cut 2.78 pp from GDP

Net exports cut 1.2 pp from GDP

Govt spending adds 1.02 pp to GDP

Business investment +10.8% vs +9.9% prelim

Business investment in equipment +13.4% vs +16.7% prelim

Exports -2.9% vs -1.1% prelim

Imports +6.7% vs +5.7% prelim

Home investment +12.7% vs +10.8% prelim

With the drop in inventories and the poor performance of trade possibly reversing later in the year, there will be a consistent tailwind for GDP for a few quarters.

Highlights from the PCE Report for April 2021

US Core PCE yy
  • Prior was +1.8%
  •  PCE core MoM +0.7% vs +0.6% expected
  •  Prior MoM +0.4%
  •  Deflator YoY +3.6% vs +3.5% expected
  •  Prior deflator YoY +2.4%
  •  Deflator MoM +0.6% vs +0.6% expected
  •  Prior MoM deflator +0.5% (revised to +0.6%)
  • Full report
This is all a touch on the strong side but I think the market was braced or priced for something worse. The dollar has dipped on the data.

Consumers spending and income for April:

  • Personal income -13.1% vs -14.2% expected. Prior month +20.9%
  • Personal spending +0.5% vs +0.5% expected. Prior month +4.7%
  • Real personal spending -0.1% vs +0.2% expected. Prior month +4.6%
There were some upward revisions to March spending as the late-month stimulus checks came in. Spending held up into April but it’s it’s tough to separate stimulus money from the real economy and that will continue to be a challenge in the months ahead.
More details on inflation (y/y):
  • Goods +4.5%
  • Durable goods +5.2%
  • Services +3.1%
  • Energy +24.8%
  • Food +0.9%
The PCE report doesn’t offer the same level of detail as CPI so you can’t say how much of a factor things like the spike in car prices had.
Check out our free forex signals
Follow the top economic events on FX Leaders economic calendar
Trade better, discover more Forex Trading Strategies
Related Articles
Comments
0 0 vote
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments