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With a flurry of economic data out today, it’s evident that the US economy is in pretty good shape, churning away despite the ever-unfolding stop-start tariff saga.
Let’s recap the data and what it all tells us.
Retail sales
Retail sales came out the gate swinging today, beating most expectations:
- Retail sales month over month: Actual: 0.6%; expected: 0.1%
- Retail sales control group MoM: Actual: 0.5%, expected: 0.3%
- Retail sales (ex autos) MoM: Actual: 0.5%, expected: 0.3%
It’s important to remember that retail sales are a nominal metric and therefore include inflation. In an era of persistently above-target inflation, this becomes increasingly pertinent.
Despite the nominal good news, you can see how consumers’ purchasing power continues to decline in real terms. For example, this chart from economist Parker Ross:
This vignette shows why significant recession is so difficult to trigger in a regime of higher inflation.
A recession could occur on a “real” basis — whilst nominal GDP continues to churn higher — in which the net effect is a decrease in purchasing power, as opposed to a nominal decrease in spending and incomes across the economy.
Philly Fed survey
Setting aside the hard data, we received updates to the Philly Fed survey, which has been exceptionally accurate in recent years.
This soft data shows clear signs of an economy rebounding from Liberation Day uncertainty and adapting to where tariffs stand today.
Across the board, every metric continued higher:
- Philly Fed CAPEX index: Actual 17.10, previous: 14.50
- Philly Fed employment: Actual: 10.3, previous: -9.8
- Philly Fed new orders: Actual: 18.4, previous: 2.3
- Philly Fed prices paid: Actual: 58.80, previous: 41.40
Jobless claims
We see further validation of a surprisingly strong economy in the weekly jobless claims data.
Initial claims surprised to the downside and continued their decline:
Continuing jobless claims also surprised to the downside, showing signs that the recent surge over the last month has stalled:
This contrast between initial and continuing claims is crucial for understanding the state of the labor market. The economy is solid enough to avoid triggering a meaningful layoff cycle, but weak enough so that those who do become unemployed are having a hard time finding a new job and thus remaining on continuing claims for longer.
Putting this all together, it’s clear the soft and hard data are beginning to rebound and improve.
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