US car sales for August were surprisingly strong, rising to 17.45m in August (consensus 16.6m) from 16.4m in July. It is the highest level in eight years and is yet another signal that underlying consumer spending may be picking up.
There was some moderation in consumer spending in June and July but we chose to interpret this as mostly 'normalisation' from the strong post-winter rebound in Q2. There has been several signs confirming this recently and it seems underlying consumer spending may be picking up.
Weekly retail sales have been strong over the summer, pointing to rising momentum in consumer spending.
US consumer confidence rose in August to the highest level since 2007.
Gasoline prices have declined over the past two months, reversing two-thirds of the increase seen this spring.
A broad set of job market indicators all point to strengthening job growth, see US Labour Market: Job growth is strengthening , 1 September.
The savings rate is relatively high compared to the improvement in net wealth (see chart below), leaving some scope for a decline in savings over the coming quarters.
At the same time most other sectors are starting to pull: core investment orders have picked up, housing has regained momentum and the drag from fiscal spending is easing. It leaves an overall pretty robust picture of the US economy. This should also have a positive spill-over to Europe and China, mitigating the softness seen there recently.
Given the US strength we expect to see a change in the Fed statement in a more hawkish direction soon. A change to the phrase that the Fed sees significant underutilisation in the labour market is possible. The Fed could also choose to change the 'considerable time' language regarding the time from the end of asset purchases to the first rate hike. This would give more flexibility in delivering an earlier rate hike than currently foreseen. Tomorrow's labour market report is likely to be important to determine whether we should expect such a hawkish shift already at the 17 September meeting (30% probability). Otherwise we expect it to come at the 29 October meeting (60% probability).
To Read the Entire Report Please Click on the pdf File Below