Yesterday's data on US retail sales for April showed a healthy jump (above expectations) as consumers bought automobiles and shopped on line.
This follows about 8 months of rather lacklustre results, so it could well be a deferred shopping spree. As I often will say, one month's data does not define a trend.
However, it has pushed expectations for consumer spending higher and, as the consumer is such a significant part of the US economy, has increased Q2 GDP growth expectations.
The "catch 22" is that if the US Federal Reserve uses this economic improvement as an excuse to raise interest rates, then it does play into our theory about the flattening of the yield curve that we discussed on our weekly client webinar last Tuesday (available at the link below):
The yield curve flattens before a recession: either 2 years rise faster than longer dated maturities, or a combination of higher short term yields and falling long term yields can create this flattening.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist