Last Wednesday saw the release of the minutes from the most recent Federal Open Market Committee meeting in June. As expected, the minutes showed that many Fed officials are growing more concerned with downside risks to the economy, as global growth continues to slow in the face of ongoing trade turbulence. Officials indicated at the meeting that these concerns may be enough to justify near-term rate cuts to support the economy. This supportive attitude, combined with similar comments made to Congress by Fed Chairman Jerome Powell, led market participants to widely expect a rate cut at the next Fed meeting at the end of the month.
On Thursday, the Consumer Price Index for June was released. Headline inflation came in as expected. It fell to 1.6 percent on a year-over-year basis, due in large part to weakness in energy prices. Consumer inflation has declined on a year-over-year basis in each of the past three months, and it now sits well below the Fed’s stated 2 percent inflation target. The core inflation figure, which strips out the impact of food and energy costs, came in higher than expected. Here, we saw 0.3 percent monthly growth, bringing the year-over-year core figure to 2.1 percent. Consumer inflation may be set to increase further, as the impact from tariffs on Chinese goods has yet to fully hit consumers.
On Friday, June’s Producer Price Index was released. It showed higher-than-expected producer inflation. Monthly inflation rose by 0.1 percent against expectations of no change. On a year-over-year basis, producer inflation grew by 2.3 percent. As was the case with consumers, low energy prices held back faster inflation during the month, and there may be room for faster growth due to increased pressure from Chinese tariffs.
On Tuesday, June’s retail sales data is set to be released. Economists expect to see monthly growth of 0.2 percent, following a 0.5 percent increase in May. Core sales, which exclude auto and gas prices, are expected to show healthy growth of 0.4 percent. Consumer confidence remains near multidecade highs, so steady growth in sales should follow.
Also on Tuesday, June’s industrial production report is set to be released. Production increased by 0.4 percent in May, partially due to 0.2 percent growth in manufacturing output. Economists expect 0.1 percent growth in production and 0.3 percent growth in manufacturing output for the month. Declining confidence figures in the manufacturing sector indicate that any increase in output is likely to be short lived unless confidence rebounds meaningfully.
Speaking of confidence, the National Association of Home Builders index is also set to be released on Tuesday. This measure of homebuilder confidence is expected to remain stable at 64 for July, as homebuilders remain reasonably confident in the housing market. The index is broken down by region. For most of the year, homebuilders in the Northeast and Midwest have shown significantly lower confidence scores than their counterparts in the South and West, which suggests regional weakness rather than a country-wide decline.
Wednesday will see the release of June’s housing starts data. It is expected to show a decline of 0.7 percent, following a decline of 0.9 percent in May. The decline in May lined up with a similar decline in homebuilder confidence, as a shortage of workers caused homebuilders to pause on new construction. There may be some upside potential here, as building permits increased in May for the first time in seven months, and homebuilder confidence is not expected to drop.
Finally, we’ll end the week with Friday’s release of the University of Michigan consumer confidence survey. Confidence is expected to pick up slightly, from 98.2 in June to 98.6 in July. Given the strong jobs market and stock markets that are near all-time highs, this expected increase in confidence would make a lot of sense. Growing consumer confidence bodes well for future economic growth in the second half of the year, as consumer spending is the backbone of the economy.
That’s it for this week—thanks for reading!