Jobless claims, retail sales are 'recipe for a soft landing'

US equities (^DJI,^GSPC, ^IXIC) are posting their strongest positive reaction to retail sales data in six months as the July print indicated strength in consumer spending. Edward Jones senior investment strategist Angelo Kourkafas joins Catalysts to break down the print and whether investors can expect a looming recession.

Kourkafas notes that the decline in initial jobless claims, alongside the strong retail sales report, was "exactly what was needed to put some of the recession fears to bed." He argues that these data points highlight a resilient consumer as inflation eases to the Federal Reserve's 2% target, ultimately creating a "recipe for a soft landing."

While some investors are still wary of a recession, Kourkafas explains that the economy is slowing, but still growing: "That's a very important distinction. We're not talking about a contraction, as was the fear after the last jobs report. The economy continues to add jobs and real earnings are positive after inflation. They have been for the last 14 months. Plus, we have lending conditions that are easing while at the same time, the Federal Reserve is about to embark on a multiyear rate-cutting cycle."

While the economy slows, it does not mean a recession is on the horizon, and he argues that pullbacks can be viewed within "the confines of an ongoing bull market."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Equities posting their strongest positive reaction to retail sales data in six months this morning.

As the print indicates strength in consumer spending.

All the headline sales number came in squarely above estimates could markets be getting ahead of their skis here to discuss.

We got Angelo office.

He is Ward Jones Senior investment strategist and Angel.

It's great to speak with you.

So we talked briefly about this before our show, but let's put a button on it.

Did we do it?

Are we at the soft landing?

Is it happening?

Yes.

So today we got a nice upside surprise in retail sales and a downside surprise in jobless claims exactly what was needed to put some of the recession fears to bed.

So think about the consumer that's resilient, the US economy, that's resilient.

Plus we have inflation moderating and coming closer to the fed's target.

That is a recipe for a soft landing.

Of course, there's a flip side to that coin that's interest rate expectations, but that's, that's the po I'm interested in what you thought about the retail sales data because if you take a look at discretionary spending under the hood, we are seeing a little bit of a retracement there and consumer slowing down ever so slightly.

Is there any chance that the market is overthinking the headline and ignoring some of the details underneath the hood that could be more indicative of the consumer?

No doubt there was a boost from uh ve very strong vehicle sales we had back in June an incident with a cyber attack uh on auto dealerships.

So this month in July, uh we did see a strong rally mean reversion from that.

But beyond auto sales, we did see a broad advance in retail sales with 10 of the 13 categories being higher.

Uh So I would say the message is undoubtedly a strong one for the consumer, but bear in mind that retail sales only give us a part of the story.

It only shows spending on consumer goods.

We still don't have a good sense of spending on services, which that's the area we are seeing a little bit more of a slowdown as consumers spend less on travel than they used to.

But overall, I think the consumer remains resilient and is doing what they know to do best and that's to spend and that's the biggest driver of the US economy.

So usually kind of wrapping that up and going back, Mr Matty's first question there, we were talking about the risk of a recession.

What is your assessment then in terms of where we stand?

Because yes, there is.

Uh it's almost like you, you can pick and choose what data points you want to focus on to support whatever argument you are trying to make.

And it certainly seems like at least from the uh research reports that I've been reading over the last several months, that that continues to be the case.

Yes, I think the broader theme if we take a step back is that the economy is slowing, but it's still growing And that's very important distinction.

We're not talking about a contraction.

As was the fear.

After the last jobs report, the economy continues to add jobs.

Uh Real earnings are positive after inflation and have been for the last 14 months.

Uh Plus we have lending conditions that are easy while at the same time, the Federal Reserve is about to embark on a multi year rate rate cutting cycle.

So putting everything together, things are not, we're in a different economy than we were last year.

Things are not.

We are transitioning from a 3 to 4% type of growth world into 1 to 2%.

Uh But that doesn't mean that something worse is ahead of us and still the Pullbacks and volatility that we have seen more recently can be thought as taking place within the confines of an ongoing bull market.