The effect of the rebates should now be seen on spending patterns as consumers have spent more than expected as they try to maintain their living standards which are affected by surging food and energy prices. Accompanied we have inflation gauge data as with a depreciating dollar and the commodities pressures the imports price index continues its upside headings feeding right through to pipeline pressures.
Retail sales are projected to have grown 0.5% from April when they fell 0.2% while excluding autos sales are expected to continue strong rising 0.7%in May after 0.5 percent the previous month. Tax rebate checks were handed out to the public with the beginning of May that had supported spending above expectations, while still it's at sluggish levels compared to the normal average nonetheless will help support economic growth considering consumption weighs 2/3 of the GDP, as now fears of a contracting economy are over yet still it's not projected to surpass sluggish growth levels.
Import price index for the month of May is expected to have leaped with a 2.5% gain on the month and 17.2% on the year after reported 1.8% and 15.4 percent respectively in April. With a rising energy bill and crude are record prices, food prices that are still elevated, raw materials that are pressuring prices at factory gates and finally rapped with depreciating dollar imported inflation is rising. As the Feds reiterated their stance to a stronger dollar on that concern as it will help ease pipeline pressures and ensure the balancing act for the Feds.
Though the Feds still see the economy rebounding in the latter half of this year yet as inflation is on the rise, rebate checks effects will be depressed and the labor market continues the downside trend, the economy only escaped contracting yet the rebound is to be a slow paced journey. After the 5.5% unemployment effect still lingers in the market today we have the weekly initial jobless benefits as they are expected to have inclined back to 370,000 after dipping last week to 357 thousand while continuing claims as their name is to continue the upside rise to 3118 thousand from 3093 thousand the previous week.
The Feds are in no room to assume the economy has miraculously healed as it only escaped contracting yet it is not to perform as strong as markets expect. As traders bet the Feds will raise rates as soon as August maybe that is a long shot and too ambitious, as I see the economy will remain sluggish in the course of this year and if inflation expectations are to rise a decision to tighten their policy will be the least in the last quarter of this year.
All details will be revealed due course, yet for now the sentiment is to optimistic regarding the US economy and the bubble burst to reality will erase the dollar gains once more, for that optimism needs data to support it and if that does not prove to be valid then again the seesaw dollar continues...