U.S. data released this week was mostly positive, adding to expectations for a rebound in real GDP growth for the second quarter. Q2 GDP data will be released on July 29. Good economic data combined with the rally in U.S. equities over the week diminishes two lingering fears…fear of a sudden downturn in U.S. job growth, and fear of a spillover from the BREXIT vote in the UK. Instead, we see the U.S. economy picking up a moderate amount of momentum at mid-year and we believe that momentum will be sustained through year-end.
The producer price index for final demand warmed up in June, gaining 0.5 percent with a push coming from petroleum products. The index is still tame over the last 12 months, up by just 0.3 percent. With the drop in oil prices from the high 40s in June to the mid-40s in July, we expect the headline PPI to stabilize through July and possibly August.
Consumer prices for June were up by 0.2 percent, just below consensus expectations. Over the previous 12 months the CPI was up by just 1.0 percent, reflecting the drag from lower energy prices through early this year.
Retail sales beat expectations, increasing by a strong 0.6 in June. Retail sales ex-autos were up 0.7 percent in June supported by a strong 3.9 percent increase in building materials sales.
Industrial production also did better than expected in June, up 0.6 percent. Manufacturing output gained 0.4 percent. Despite cooler auto sales, motor vehicle assemblies were up by 9.6 percent.
Initial claims for unemployment insurance were unchanged for the week ending July 9, holding a very low 254,000. Continuing claims gained 32,000 for the week ending July 2, to hit 2,149,000, still a very low number.
The Job Openings and Labor Turnover Survey for May showed a small step down in the job openings rate to a still-strong 3.7 percent. The hiring rate remained at 3.5 percent, down a bit from its recent peak of 3.8 percent in February. This is consistent with our expectation for a gradual decrease in payroll job growth through next year.
The National Federation of Independent Business Small Business Optimism index increased by 0.7 points in June to 94.5, the third monthly gain.
The Bank of England surprised by not easing policy at its Monetary Policy Committee meeting on July 14. However, they strongly suggested that easing would come at the next meeting on August 4. We expect to see a combination of interest rate cuts and asset purchases as the MPC attempts to bolster the UK economy on the heels of the June 23 BREXIT vote.
The European Central Bank’s Governing Council meets on July 21. A recent Reuters poll suggests no easing. We expect the Bank of Japan to provide more monetary stimulus at its Monetary Policy Meeting over July 28/29. This may coordinate with a new fiscal stimulus.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-15-2016.