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Below is a chart and brief excerpt from today's Early Look written by Macro analyst Christian Drake.

Following two months of record declines, Retail Sales jumped +17.7% sequentially (still down -6.1% Y/Y), chasing Powell’s bond buying commencement & Pump’s infrastructure ambitions to complete the Sierpinksi gasket of recovery optimism.

Meanwhile, after recording the worst sequential decline in over a century, the domestic industrial data bounced like a brick. 

Following last month’s -12.5% plunge, Industrial Production rose +1.39% in May – improving just 100 bps to down -15.3% Y/Y and marking a 9th consecutive month of negative annual growth.  

Similarly, Capacity Utilization rose just +0.8% (-13% Y/Y) following two months of steep decline in March/April and, at 64.8 on the index, continues to represent the largest amount of excess capacity ever (to note the obvious - excess capacity is disinflationary and margin/profit negative for any company with a model hinged on operating leverage).  

Moreover, U.S. Manufacturing & Trade Inventories fell -170bps to -2.2% YoY in the latest April data, marking the worst print since APR ’10 and fastest deceleration since FEB ’09

The risk associated with navigating a discrete flattening in the recovery curve and the associated inability to recapture Pre-COVID levels of activity domestically and globally. 

With respect to timing, the positive headline parade should extend for around another 6 weeks before giving way to progressive flattening as cyclical optimism is forced to more soberly contemplate the structural fallout.

CHART OF THE DAY: Two RoC Paths Diverged In The Macro Woods... - CoD IP vs RS