A raft of economic data released last week gave a more up to date picture of how the domestic economy has been performing over the last couple of months. Tuesday saw employment figures, and average earnings for May released. Although the rate of job creation slowed, it was not enough to result in a rise in the unemployment rate, which remained at 3.8%. Furthermore, the tightness in the labour market continued to drive wage growth higher with a greater than expected 3.6% increase in average earnings coming in comfortably higher than inflation, that was reported at 2% for June, in line with the May figure. These positive figures were followed up on Thursday with a 3.8% increase in retail sales for June, higher than the 2.6% expected. Overall, these figures suggest that fears that the economy would enter a recession in the second quarter were premature. Growth may well come in at 0% for April-June; however, this is following on from a 0.5% rate at the start of the year.
Last week China released GDP data for the second quarter, showing that the economy grew by 6.2% year on year. Economic data from China is always received with scepticism, and with the world’s second-largest economy once again growing exactly in line with expectations, many commentators estimate that the true rate of growth was lower. China has been on a programme to rebalance its economy towards domestic consumption and away from a reliance on external demand. While considerable progress has been made on this, the impact of higher US tariffs is beginning to have an impact, with both exports and imports significantly lower. With a large amount of stimulus already being used over the last year, and imbalances building up in the economy, the authorities will want to be measured in how they respond to the continuing but inevitable slowdown in GDP that is occurring.
US Debt Ceiling
With the US deficit expanding, the threat of another political standoff over the debt ceiling is growing once again. Over recent years, politicians have increasingly used the debt ceiling as a way to extract concessions from the President. Previously, this has led to government shutdowns and the threat of a technical default by the US government. With increasingly antagonistic language being used between the Democrats and the President, the likelihood of another shutdown appears to be increasing. While previous episodes have eventually been resolved and the impact on the real economy has been limited, such events are bad for sentiment, particularly if it is combined with other negative news flow.
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