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Economics Weekly June 24, 2024

illustration of two people in front of a graph July 1, 2024

Latest PMI figures point to robust growth for the U.S.

The ‘flash’ PMI data for the U.S. came in stronger than expected, and contrasted with signs of slowdown in other major economies. The U.S. composite PMI index read at an impressive 54.6 in June, up from 54.5 in May, and well ahead of Wall Street’s forecast of 53.5. The convention of the index is that a reading over the 50 mark points to growth for the economy. In contrast, the PMI figures for the Eurozone declined from 52.2 in May to 50.8 in June, while the UK slid from 53.0 in May to 51.7 in June. Separately, U.S. industrial production figures for May reported a rebound for growth, from 0.0% month over month in April to 0.9% in May, which beat a Wall Street forecast of 0.3%. The increase was primarily driven by the manufacturing sector. This is potentially good news for leasing demand for industrial and logistics real estate.

Speculation increased that the Federal Reserve may be drawing closer to the day it finally cuts rates after Fed Governor Adriana Kugler said there were signs consumer spending was slowing. Kugler cited the latest retail sales figures, which showed growth was just 0.1% month over month in May, as “another signal that the long-expected deceleration in consumer spending may be finally upon us”. Overseas, the Swiss National Bank cut its policy interest rate by 25 bps last week, while the Bank of England left rates on hold but hinted that a cut is getting close. The European Central Bank and the Bank of Canada reduced interest rates earlier this month. Rate cuts by major foreign central banks confirm that the global trend for interest rates is now downwards, which will increase the pressure on the Fed to eventually follow suit.

This week will see data released on house prices and durable goods orders. For house prices we believe that growth probably slowed, but with ongoing momentum in the economy keeping the figures in positive territory. Durable goods orders tell us whether firms are investing in new equipment, such as machinery, IT or vehicles, so it is a good proxy for business confidence. We are predicting continued growth.

Things to watch for this week

Tuesday, June 25

S&P Case Shiller Home Price Index, m-o-m, April

Previous: 1.6%
Forecast: 1.2%

By April doubt was emerging on how soon the Fed would begin cutting interest rates, leading us to forecast a small deceleration in house price growth.

Thursday, June 27

Durable Goods Orders, May 

Previous: 0.7%
Forecast: 0.6% 

Given the business survey evidence for May was robust, we are expecting continued growth for durable goods.