What can we expect?

US: Reopening means retail sales and industry data to surge, as well as inflation to push higher

With the US economy opening up more and more each day the outlook for activity and job creation continues to brighten. At the same time there will be long-term scarring on the economy, resulting in supply constraints given thousands of businesses have closed and skills have been lost. In an environment of stimulus fuelled demand, this risks pushing inflation higher and allowing it to stay more elevated for longer than we have seen in previous cycles.

In terms of the coming week, we expect to see some very strong retail sales and industrial production numbers. Improved weather will play its part after February’s winter storms disrupted logistics and deterred people from going out to spend money. March will consequently see a bounce back. The latest $1400 individual stimulus payments will help further lift retail sales, although given it came towards the back end of the month we are likely to see something closer to a 5%month-on-month gain rather than the 8% gain of January when stimulus payments of $600 were paid out at the beginning of the month. Moreover, with more restaurants and entertainment venues opening up and travel showing a strong recovery there are clearly more options to use the extra money and we increasingly expect to see spending move away from physical “things” toward services and “experiences”.

Continued surge in equities might be set to continue. We have seen positive weeks for both the Nasdaq and Dow Jones this past week. As we have seen a huge influx of retail money in the past two weeks which has coincided with the rise. We have spoken about this previously as trends are seemingly being pushed by retail money.

“While the Fed continues to indicate little prospects of a rate rise before 2024, our houseview remains for a 1H23 move with risks increasingly skewed towards an earlier rate hike in late 2022” these were the words of ING economists James Knightley and James Smith. We share a similar view at this point and do remain cautious of looking to far ahead, as things are constantly changing at the moment.

UK GDP to show mild February improvement

All the data we’ve had so far suggests that next week’s GDP data should show a modest improvement after January’s near -3% fall in activity, which had coincided with the introduction of lockdown and new UK-EU trade ties. Retail data was slightly improved in February, and past experience of re-openings suggests the forthcoming reopening of shops should see a rapid recovery in spending levels to pre-Covid-19 levels. In fact, we’re looking for a 4-5% bounce in GDP in the second quarter, assuming the May part of the reopening plan goes ahead.

Elsewhere, data from France suggest next week’s trade figures are likely to show the UK export situation improved in February. Anecdotal evidence and other traffic data suggest some of the initial teething problems had been ironed out by then, though ONS survey data suggests some firms in the more sensitive manufacturing and wholesale/retail sectors were still finding it hard to export at all through much of the first quarter.

Sources Used: Refinitiv and ING