Santander Research: After a first quarter of surprisingly strong economic data and inflation, April seems to be a slowdown, as indicated by our economists. And that starts with payrolls (175k) and, above all, consumption slowing down, from the explosive +3% growth of 3Q23 and 4Q23 to +2% in 1Q24 after revisions. And what is even clearer, 2Q24 started with April’s nominal growth of +0.2% and even negative in real terms, -0.1%.
With these data, and a savings rate that plunged in March to 3.2%, a 2022 low, our economists lower their estimate for nominal consumption and real GDP in 2Q24 to 2% (2.5%e previously) and for real consumption to only 1% in 2H24. For our economists, the Fed’s first requirement, that of a landing, seems to be met. The second, progress in inflation, seems more complicated. And, as they point out, the best core PCE deflator figure of +0.2% in April was actually just short of an upward rounding (0.249%), or, in other words, an annualised advance of 3%.
In short, as they point out, a “baby step” in the right direction but by no means decisive. Even less so if we take into account Kashkari’s comments betting on unchanged rates for a long period (FT this morning): cutting rates before controlling inflation would put the foundations of US prosperity at risk.
