Is the economy really improving? Analysts at Evercore ISI point out that it's not just one indicator that makes the case that a "growth bounce" has started. It's the package of indicators. ISI analysts point to these pieces of evidence:
1. Tax Receipts are surging
U.S. tax receipts were up +8.3% year over year in May, which is remarkable with just +3.0% nominal GDP growth.
2. The ECB is a great shape
The ECB’s balance sheet increased by 12 billion euros this week and is scheduled to continue to increase at least for the next year. This is part of the still expanding global stimulus.
3. More key data is all trending up
The latest ISI data shows that construction spending is up, vehicle production is up, vehicle sales are up, trade is up, unemployment claims are down, house prices are up, small business confidence is higher, employment is improving, hourly earnings are improving, and the number of U.S. job openings has finally surpassed the previous peak set in 2001.
4. Mortgage Applications are through the roof
And there's more: ISI points out that mortgage applications increased a big 9.7% week over week. This probably reflects fence-sitters who are moving because they sense mortgage rates will be higher in the weeks and months to come. In the past two weeks, ISI notes, mortgage rates have increased almost 20 basis points to 4.11%.
5. Other countries are taking measures to spur growth
It's not just the ECB that is still stimulating like crazy. On June 1 we learned that Sweden is about to launch an infrastructure boom to help lower unemployment, and on June 10 we learned that Brazil plans a $65 billion infrastructure package for the same reason. Plus South Korea and New Zealand just cut interest rates.
Bottom Line: Evidence of a "growth bounce" out of the terrible Q1 is mounting. There could still be a lot of countervailing data ahead, but don't just ignore the improvements because it doesn't fit the recent morose paradigm. The Fed for sure won't. A rate hike could come sooner than expected if this keeps up.
-- Jon D. Markman
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