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Key US Data Releases Support Hawkish Fed Policy

Don Curren June 14, 2018

US retail sales growth doubled economists’ expectations in May, providing a degree validation for the Federal Reserve’s hawkish policy stance on Wednesday and throwing some support behind the greenback.

Initial jobless claims data were also strong, and supportive of the view the US economy’s expansion remains robust.

The US Dollar Index showed a modest extension of earlier gains after the data were released, but the impact of the releases was quite contained, since attention has largely been focused on geopolitical events that have occurred in the past seven days as well as the Federal Reserve’s path towards raising interest rates in the second half of 2018.

The US Census Bureau reported Thursday that its seasonally adjusted advance estimates of U.S. retail and food services sales for May 2018 were C$502.0 billion, increasing 0.8% from the previous month.Economists had expected a 0.4% gain.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.5% in May, besting expectations of a 0.3% rise.

Separately, the United States Department of Labor reported seasonally adjusted initial jobless claims fell to 218,000 during the week ending June 9.

The data are slightly better than market expectations, which were set at 224,000 new claims. These figures also represent a decrease of 4,000 from last week’s unrevised 222,000 data point.

Weekly claims remain below 300,000/week – indicating that the US labor market remains healthy. The four-week moving average of initial jobless claims stands at 224,250, which is slightly lower compared to last week, and roughly 20,000 lower than last year.

North of the border, Statistics Canada reported that the household debt to disposable income ratio decreased from 169.7% in the fourth quarter to 168%, as disposable income increased at a faster rate (+1.3%) than credit market debt (+0.3%).

The ratio is closely watched by markets as a bellwether indicator for the financial health of Canada’s heavily leveraged household sector, and the modest pullback is somewhat reassuring for those concerned about that sector’s financial stability.

Bottom Line:  While they had only a modest impact on the greenback, US retail sales data for May released Thursday ratified the Fed’s decision to raise its policy rate on Wednesday and lean toward continued monetary tightening. Jobless claims data clearly indicated the labor market remains healthy and the Fed stands on solid ground in its intent to continue gradually raising interest rates during the second half of 2018.

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Co-author: Matthew Eidinger

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