United States
The US economy remains healthy but slowed considerably in Q2 2024.
Real GDP increased at a 1.4% annualized level in Q1 2024, and most economists are forecasting similar levels of growth for Q2.
Consumer spending has moderated from torrid levels in 2023 as excess pandemic savings are wound down and the effect of higher interest rates work their way through the economy.
Credit card and auto loan delinquencies have steadily increased over the past several quarters, especially for lower-income consumers.
The labor market is well-balanced but is showing signs of cooling.
Job creation has been healthy, averaging over 200K per month thus far in 2024. However, from April-June, monthly job creation has decelerated to 177K.
Wage growth has moderated to roughly 3.9% annually, and the job market appears in better balance with job openings down to 8mm relative to 12.7mm during the 2022 peaks. Furthermore, quit rates have declined to pre-pandemic levels.
Inflation has resumed it disinflationary trajectory after a brief resurgence earlier this year.
The core PCE (favored by the Fed) declined to 2.6% annually in May and has also averaged 2.5% annually over the past three months.
June CPI (-0.1% MOM) and Core CPI (+0.1% MOM) both came in below expectations. Importantly, both shelter and non-shelter services cost inflation receded sharply.
The Fed has begun to signal that interest rate cuts are likely sooner rather than later. Market participants are pricing in two cuts in 2024 beginning in September.
Canada
Canada’s economy remained stable in Q2.
Real GDP is forecast at 1.7% annualized Q/Q, a similar figure to that achieved in Q1.
Strength has been broad-based, with 15 out of 20 sectors registering growth. Growth was balanced between goods and services sectors.
Consumer spending remained robust in H1, but economists expect this to slow in H2 2024 and into 2025. The unemployment rate has climbed a full percentage point to 6.7%, and mortgage renewals will begin in earnest in 2025 amidst a backdrop of significantly higher rates.
As inflation has continued to subside, the Bank of Canada enacted its first rate cut in June.
Europe
Europe’s economy remains in the early stages of recovery from last year’s mild recession. However, the recovery remains fragile, with signs of stalling.
Eurozone Real GDP expanded by 0.3% Q/Q in Q1 after 5 quarters of stagnation.
Economists are optimistic about accelerating growth given the receding energy crisis, substantial employment, healthy consumer savings, and likely continued interest rate cuts given slowing inflation.
Services PMIs have been positive for several months following an H2 2023 lull.
However, manufacturing remains weak, with PMI surveys remaining below the 50 level, which indicates neither growth nor contraction.
Furthermore, recent business surveys point to a potential stalling of recovery momentum as Chinese consumer activity (a key export market for Europe) remains weak and recent election results in France have led to policy uncertainty and a pause in business spending.
The ECB cut rates in June, and economists forecast several further rate cuts given the steady slowdown in core inflation (core CPI at 2.8% YOY).
China
China’s Q2 2024 growth missed consensus expectations. The government is likely to increase stimulus measures in H2.
Real GDP grew 4.7% YOY during Q2, missing consensus expectations for 5.1% growth, and slowing from Q1’s 5.3% growth figure.
A protracted property market downturn and job insecurity knocked the wind out of a fragile recovery.
The property market remains weak despite various government support measures. New home prices fell at the fastest pace in nine years, significantly denting consumer confidence.
Retail sales growth remained weak but bounced back modestly in June.
Deflationary pressures remained as businesses slashed prices on a wide range of goods.
To counter weak domestic demand, China increased infrastructure investment and is focusing on high-tech manufacturing.
China is still targeting around 5% Real GDP growth for 2024. Achieving this goal is highly dependent on the levels and efficacy of government fiscal and monetary stimulus.
