The economy experienced slower growth than initially reported in the first quarter of 2024, with GDP rising at an annualised rate of 1.3%. This figure was below previous estimates, reflecting softer consumer spending on goods. Additionally, US manufacturing data in May showed a surprising decline, continuing its contraction trend.
Despite this, the US consumer confidence index saw an increase after three consecutive months of being subdued. However, it still reflected household concerns over persistent inflation.
In contrast, recent economic data from the Eurozone exceeded expectations, lending credibility to the narrative of an economic rebound in the region. The manufacturing PMI in May edged higher, albeit from a low base. Similarly, the UK manufacturing sector continued its positive trend, marking its highest level since July 2022. Eurozone economic sentiment also improved in May, adding to expectations of continued modest growth in the second quarter of 2024. The labour market remains extremely tight, with Eurozone unemployment dropping to 6.4%, its lowest level since 1999. This narrowing of the growth gap between the US and Europe suggests that “US exceptionalism” may have peaked.
Encouraging signs are also emerging from Asian economies, with Chinese data generally surprising to the upside. However, the details of the recovery are less convincing, considering the weakness in domestic demand, with the real estate sector remaining in distress.
Inflation data was mixed in May, with US inflation moderating while UK and EU inflation data were slightly higher than expected. Despite this, the expectation that EU and UK inflation will undershoot US inflation in 2024 remains unchanged. Consequently, European and UK bonds are anticipated to outperform US bonds. Despite the higher-than-expected inflation release, there is a strong expectation that the European Central Bank will cut rates at their June meeting.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
