The Independent Market Observer

Monday Update: Inflation and Retail Sales Soft, but Industrial Production Solid

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jul 17, 2017 9:13:46 AM

and tagged In the News

Leave a comment

monday updateAfter a week of good news, last week’s economic data returned to the soft side. Inflation continues to run below Federal Reserve targets, and retail sales disappointed. Despite that, however, industrial production did well, suggesting that the economy as a whole may not be weakening, even if parts of it are. The Fed, in particular, appears to remain optimistic about growth.

Last week’s data

On Wednesday, Fed Chair Janet Yellen’s semiannual testimony to Congress was perceived as mildly dovish. She noted ongoing concerns that inflation was too low and indicated that future rate increases could be affected by that. She also failed to give a timetable for starting to reduce the Fed’s balance sheet, beyond sometime this year. Although markets interpreted them as dovish, Yellen's remarks were largely a reiteration of the most recent meeting minutes and, as such, provided little if any new information.

Fed concerns about inflation will continue, however. On Friday, Consumer Price Index data for June came in weak again, continuing a run of low inflation since March. As the string of weak inflation reports continues, the likelihood that it will affect Fed policy decisions increases. Headline inflation was flat for June, below an expected 0.1-percent increase. It also dropped to 1.6 percent on an annual basis, down from 1.9 percent in May. Core inflation edged up 0.1 percent, below expectations of a 0.2-percent gain, while the annual figure remained at 1.7 percent. With inflation continuing to come in below Fed targets, and the disinflationary trend widening, this is becoming increasingly hard to dismiss as temporary.

Also important on Friday was the retail sales report. Although consumer income continues to rise, spending has grown by much less. The headline retail sales number dropped 0.2 percent in June, below an expected 0.1-percent gain and down from an upwardly revised decline of 0.1 percent in May. For core retail sales—which exclude food, gas, building materials, and autos—the news was just as bad, with a drop of 0.1 percent against expectations of a 0.3-percent increase. The year-on-year comparisons were also down. The continued weakness in retail sales may be a sign of decreasing growth; as such, it is something to keep watching.

The industrial production report on Friday was the bright spot of the week, with growth of 0.4 percent, above expectations of 0.3 percent. Industrial production in the second quarter was up to 4.7 percent on an annual basis, from 1.4 percent in the first quarter. Manufacturing was up by 0.2 percent, as expected, and the capacity utilization rate rose to 76.6 percent, the highest level in almost two years. The strong headline growth number includes strong utility growth, on warm weather around the country, but the manufacturing number is also solid and suggests that this sector of the economy continues to strengthen.

A look at the week ahead

This week is a quiet one for economic news, with only housing data on tap.

On Tuesday, the National Association of Home Builders industry confidence survey will be released. It’s expected to increase from 67 to 68. This is a very high level of confidence, not far off the 12-year high of 71 set in March of this year. If it comes in as expected, the result would suggest that industry confidence continues to be supported by low levels of available inventory and high demand.

Housing starts, released on Wednesday, are expected to ratify that confidence, rising from 1.092 million in May to 1.18 million in June. This would represent only a partial rebound from the drop in May, but there is some downside risk, as building permit issuance has declined recently. Housing starts are actually down on a year-to-year basis, so a significant bounce back would be a positive indicator for the economy as a whole.

Have a great week!

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®