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Monday Update: Highlight on the Fed

Written by Sam Millette | Aug 5, 2019 5:15:12 PM

Last week was packed with updates that covered broad sectors of the economy. This will be a much quieter week, with only two major economic reports scheduled for release.

Last week’s news

The week began with Tuesday’s release of June’s personal income and personal spending reports, which both came in with solid growth. Incomes rose by 0.4 percent during the month, while spending grew by 0.3 percent. This marks four straight months of spending growth, which was a major driver of overall second-quarter growth.

Spending growth was supported by income growth, but it was also driven by increasing consumer confidence. The Conference Board Consumer Confidence Index jumped by more than expected in July. It rose from 121.5 to 135.7, against expectations for a modest increase to 125. This boost in confidence was driven by a strong job market and equity markets that hit all-time highs during the month.

Last week, the FOMC met on Tuesday and Wednesday and released its rate decision on Wednesday afternoon. The FOMC cut the federal funds rate from a maximum of 2.5 percent to a maximum of 2.25 percent, as expected. This marks the first rate cut since December 2008. In his postmeeting press conference, Fed Chairman Jerome Powell indicated that future rate cuts are possible—but not guaranteed.

Thursday saw the release of the ISM Manufacturing index. It was expected to show a slight increase in manufacturer confidence in July. Unfortunately, manufacturer confidence declined during the month, as the index dropped from 51.7 to 51.2. This decline brings the index to its lowest level since August 2016, as manufacturers continue to feel the effect of slower global trade.

Speaking of trade, on Friday, June’s international trade balance report was released. The trade deficit narrowed slightly from $55.5 billion in May to $55.2 billion in June, which was less than expected. The U.S. goods trade deficit with China widened to a five-month high of $30.2 billion, as U.S. exports declined by more than imports during the month.

Also on Friday, July’s employment report was released. Overall, 164,000 new jobs were announced, against expectations for 160,000. The underlying numbers were positive as well, with the participation rate increasing, underemployment falling, and wages growing faster than expected. The unemployment rate remained at 3.7 percent.

Finally, we finished off the week with the second and final report for the University of Michigan consumer sentiment survey for July. It remained unchanged from the initial reading of 98.4. Despite the lack of change, this measure of consumer confidence still showed growth in July compared with June’s levels.

What to look forward to

The week is off to a rocky start with a disappointing result from July’s ISM Nonmanufacturing index. This survey, which measures business confidence for the service sector of the economy, fell from 55.1 in June to 53.7 in July, against expectations for a modest increase. This decline brings the index to its lowest level since August 2016, as even the service side of the economy is feeling pressure from a slowdown in global trade amid the ongoing trade wars. This is a diffusion index, where values above 50 indicate expansion. So, business owners still expect to see growth, but the slowdown in confidence should be monitored.

On Friday, July’s Producer Price Index will be released. Producer inflation is expected to increase by 0.2 percent on a month-over-month basis, which would keep year-over-year inflation flat at 1.7 percent. Low energy costs continue to drive down overall producer inflation. Core producer inflation, which strips out the effect of volatile food and energy prices, is expected to increase slightly on a year-over-year basis, from 2.3 percent to 2.4 percent.

That’s it for this week—thanks for reading!