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The recent string of data shows the US economy is recovering from what will likely be revised into a small quarterly contraction.  We know that slack in the labor market continues to be absorbed.  Evidence from the average hourly earnings, Employment Cost index, and the Employer Costs for Employee Compensation that was reported yesterday, that upward pressure on labor costs is being experienced.  From a competitive point of view, unit labor costs are rising.

The third piece of the macroeconomic puzzle is consumption.  Americans went on a shopping spree last October and November,, but went stayed home from December through February, when retail sales actually fell by 0.7% a month (though the decline was partly a function of prices).

Retail sales in March rose by 1.1%, the most in a year, however, in April, sales were flat.  Retail sales are expected to have risen by 1.2% in May, aided by the strong auto sales figures that have already been reported.  The component that is used for GDP calculations excludes autos, gasoline and building materials (among some other minor categories).  It is expected to rise 0.5%.  That would put April-May average at 0.25% compared with 0.02% in Q1.

If US retail sales are as expected, or even stronger, it may not be enough for the dollar to recover much against the European currencies, where a more powerful dynamic is at work.  German bunds continue to trade heavy.  The risk is that this position adjustment has not run its course.  And far from trying to calm the market down, ECB President Draghi told investors to get used to it (last week) and today Bundesbank President Weidmann seemed to embrace the backing up yields as a health development after the market “indulged in enthusiasm”.   He says reversal will foster greater risk awareness.