Despite yesterday’s 1Q GDP data, which came in lower than consensus expected, Deutsche Bank is remaining adamant in their belief of a sustainable recovery ahead driven by consumer spending gains.
Their key metric to focus on is the trend in jobless claims data, which they believe is forecasting upcoming American wage and salary gains, which will translate into consumer spending gains.
However, as the figure below highlights, wage and salary growth is highly correlated with the level of initial claims (91%), so the improvement in the latter suggests further W&S gains are likely. The recent revisions to Q1 GDP also included downward revisions to Q4 wage and salary income (by $30.3B), based on more complete tax records. On the margin this is negative for the consumer spending outlook, however, recent labour market improvements are likely to be the more dominant factor with respect to spending. As such, next week’s May employment report takes on heightened significance. We are projecting a +475k nonfarm payroll gain, or +225k excluding Census hires.
(Via Deutsche Bank, Household incomes to fuel sustainable recovery, Joseph LaVorgna, 27 May 2010)