Inside the 2nd estimate of Q2 GDP data and July PCE data, we saw evidence of a resilient US consumer which does not ties up with a weak employment narrative as set up by July NFP no. Personal income grew 0.3% in July, up slightly from June’s 0.2% pace. Employee compensation also increased 0.3%, accounting for two-thirds of the approximately $6.3 billion monthly increase in aggregate personal income. That’s despite a weak jobs report, which showed the decline in average hours worked offsetting the increase in wages and employment. Personal spending increased in July to 0.5% (market estimates of 0.3%) from 0.3% in June. The real personal spending data too came higher at 0.4% (market estimates 0.3%) in July from 0.2% in June. Spending on discretionary services like recreational services quickened to 1.2% in July (vs. 0.7% prior), while food services and accommodations rose 0.5% (vs. 0.2% prior). These data points don't support weak employment conditions. There were upward revisions to April, May & June for real consumer spending too. It is a much stronger path than previously reported & means that even if we get “just” 0.1% MoM real spending prints for August & Sept, we are looking at 3.4% annualised consumer spending within the Q3 GDP data. This implies that the Q3 GDP is now likely to come at 2.5-2.7% versus previous 2% estimates. This kind of strong GDP data doesn’t support the hard landing narrative/ the 100-bps cut in REMCY24. We stick to 25 bps*3 cuts in REMCY24 as a strong US consumer indicates employment conditions are not as dire as the July NFP report portrayed. We recommend paying 2 yr US SOFR & 1yr-1yr swaps.
