Retail Sales Advance, Sentiment Eases: U.S. Economic Takeaways

Consumers, Banks as Signs of U.S. Economic Optimism
  • Some economists raise 2Q growth forecasts after retail report
  • Michigan survey shows market volatility damped expectations

What you need to know about Friday’s U.S. economic data:

RETAIL SALES (JUNE)

  • Rose 0.6 percent (forecast was for 0.1 percent gain) after revised 0.2 percent advance in May
  • Eleven of 13 major categories showed improved demand
  • ‘Control group’ sales, used to calculate GDP, increased 0.5 percent for a second month

The Takeaway: The American consumer showed no sign of letting up last month. The retail sales control group, used to calculate gross domestic product and which excludes autos, building materials, food and gasoline, rose at a 7.4 percent annualized rate in the second quarter. That’s the fastest in two years and indicates consumer spending rebounded strongly during the period after a slow start to the year. Economists at Barclays, JPMorgan Chase and Morgan Stanley were among those raising their second-quarter economic growth projections after the report. The figures show household spending is helping galvanize the U.S. economy even as uncertainty in global markets, including concerns about Brexit’s impact, threatens to restrain business investment.

MICHIGAN CONSUMER SENTIMENT (JULY PRELIMINARY)

  • Fell to three-month low of 89.5 from 93.5 in June (forecast was for no change)
  • Consumer expectations gauge plunged to 77.1, lowest since September 2014, from 82.4
  • Index of current conditions fell to 108.7 from 110.8
  • Americans’ one-year inflation expectations rose to 2.8 percent from 2.6 percent
  • Long-term price expectations held at 2.6 percent

The Takeaway: The British electorate’s June 23 vote to leave the European Union shook confidence among high-income earners whose stock portfolios took a short-lived thumping on prospects for a dimmer global economic outlook. Stocks have since recovered to all-time highs, prompting Richard Curtin, the Michigan survey’s director, to project a rebound in optimism later this month. While the headline index’s plunge was mainly reflective of post-Brexit jitters, the fewest Americans since 2007 saw deterioration in their balance sheets, indicating the consumer will continue to fuel the domestic economy.

CONSUMER-PRICE INDEX (JUNE)

  • Rose 0.2 percent for a second month (forecast was 0.3 percent)
  • Prices excluding food, energy increased 0.2 percent for third month
  • CPI boosted by higher shelter, energy and medical-care costs
  • Core CPI rose 2.3 percent from June 2015, matching largest year-over-year advance since expansion began in mid-2009

The Takeaway: A pickup in inflation is gradually emerging in the economy, helped by rising shelter and energy prices. The dissipating influence of a strong U.S. dollar will also contribute to broader price pressures and enable companies to regain the ability to charge their customers more. Faster inflation underpinned by improving consumer demand and a healthy job market would make any decision to raise interest rates easier for the Federal Reserve.

INDUSTRIAL PRODUCTION (JUNE)

  • Rose 0.6 percent (forecast was 0.3 percent), most in a year
  • Output at factories alone, which makes up about 75 percent of total production, climbed 0.4 percent after a revised 0.3 percent decrease
  • Utility output surged 2.4 percent because of warmer weather
  • Mining production rose 0.2 percent

The Takeaway: The worst of America’s manufacturing slump is over, reflecting the fading drags from lower oil prices and the stronger dollar. Production of automobiles jumped by the most since July 2015, while oil and gas well drilling posted a small gain for the first time since August. While consumer spending has picked up, sluggish global markets and the potential repercussions of Britain’s impending exit from the EU are possible hurdles for U.S. exporters.

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