Article / 02 August 2016 at 5:01 GMT

3 Numbers: US spending solid in June, auto sales boom

editor/analyst /
United States
  • UK Construction PMI will likely reaffirm that recession risk is rising for Britain
  • Modest growth expected in June update on US personal income and spending
  • US auto sales are on track to bounce back in July, belying weakness elsewhere

By James Picerno

Rising macro risk for the UK is in focus today with the June update of the Markit/CIPS Construction PMI. Later, two US numbers will be widely read after last week’s disappointing Q2 GDP report: Personal income and spending data for June and the July figures for auto sales.

UK: Construction PMI (0830 GMT) The evidence continues to mount that the UK is headed for a recession. The latest smoking gun: Manufacturing survey data.

Output in the sector deteriorated in July at the fastest pace in more three years, according to yesterday’s update of the Markit/CIPS UK Manufacturing PMI.

The benchmark tumbled to 48.2 last month in the final estimate, slightly below the flash estimate and well below June’s 52.4. A reading below 50 reflects contraction.

“The pace of contraction was the fastest since early 2013 amid increasingly widespread reports that business activity has been adversely affected by the EU referendum,” a senior economist at Markit said. “The drops in output, new orders and employment were all steeper than flash estimates.”

The news adds more weight to expectations that the Bank of England will move to add more liquidity into the economy by unveiling an interest rate cut at Thursday’s scheduled policy announcement.

 Ramping up: Maybe it's the price of gas but US automobile sales are strong. Photo: iStock

“Taken at face value, recent survey data point to a significant recession,” an HSBC economist told Reuters yesterday. “However, there may be some element of a knee-jerk reaction and the [BoE's Monetary Policy Committee] may wish to wait for more data before making such a big call.”

Today’s PMI update for the UK construction data may be a factor that influences the outlook. But weakness in this corner has already been conspicuous well before the Brexit vote shocked the world with the June 23 referendum. Indeed, the Markit/CIPS UK Construction PMI fell into recession territory in May, sliding to 46.

It’s likely that today’s update for June will strengthen the view that Britain’s recession of some degree is a forgone conclusion.
US: Personal Income & Spending (1230 GMT) US growth remained anaemic in the second quarter, according to last week’s “advance” Q2 estimate of GDP.

The 1.2% rise is well below what the market was looking for and not much stronger than Q1’s tepid 0.8% rise (seasonally adjusted annual rate). The good news is that the soft trend doesn’t appear to be weighing on the consumer sector - at least not yet.

Personal consumption expenditure accelerated to 4.2% in Q2, up sharply from 1.6% in Q1. The latest increase marks the strongest quarterly advance since 2014’s Q4.

Today’s June report for income and spending will offer more detail on the consumer sector in Q2’s final month.

Based on’s consensus forecasts, economists are looking for relatively stable growth. Consumer spending's expansion for the monthly comparison is on track to decelerate to 0.3% against 0.4% in May, but that still marks a respectable gain. Meantime, personal income is projected to tick up to 0.3% in June from 0.2% in the previous month.

In other words, the upbeat consumer profile we saw in last week’s GDP report will probably be reaffirmed in today’s report. There may be trouble brewing for the US economy in the second half, but if there is it’s not obvious that the trouble’s coming from the consumer sector.

US: Auto Sales (TBD) Another look at the consumer’s appetite for spending arrives in today’s monthly review of auto sales.

Unlike consumer spending generally, the appetite for buying more appears to be ageing. Sales of autos and light trucks in June fell to 16.66 million units (annualised rate), a hefty decline from the 17.4 million-plus units in the previous two months.

“We’ve had six straight years of unprecedented growth, and there’s no way that can be sustained forever,” observed an analyst at Autotrader. “A dip is inevitable.”

Fair enough, but not today - or so economists are projecting.’s consensus forecast sees sales ramping up again to 17.5 million in today’s July update. If the estimate holds, sales are on track to rise to the highest level since February.

The senior vice president at LMC Automotive, a consultancy, said last week that the outlook for sales remains “solid over the forecast horizon, with volume forecasts holding at the mid-17 million unit level before slowly climbing past 18 million units by 2022.”

Surprising? Not really, based on the comparatively stable growth in consumer income and spending lately (see note above). The implied message: Momentum may be fading for pushing unit sales into record territory, but it’s not obvious that sales are about to tumble either.
-- Edited by Adam Courtenay

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform


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