This week’s crop of data was mixed, but consistent with a slow-growth U.S. economy. U.S. retail sales fell for the third consecutive month in June, the first time that has happened since late 2008. This is a definite warning sign that the economy has lost steam, but it is not sufficient, by itself, to raise the recession flag. A mitigating factor in the three-month decline in retail sales is the fact that gasoline prices fell significantly from April through June, and that was a major drag on gasoline station sales. Net of gasoline stations, retail sales fell in April and June, but not in May. A combination of faltering consumer confidence, weak job growth and perhaps a very rational increase in the saving rate in anticipation of the 2013 fiscal cliff has put consumers back on their heels. With two-thirds of U.S. economic activity in the hands, and wallets, of consumers, the Q2 spending slump is a strong warning signal that the U.S. economy has lost momentum. The consumer price index was unchanged in June, held down by energy prices, which fell for the third consecutive month. The energy component of the CPI fell by 1.4 percent in June as gasoline prices fell 2.3 percent after seasonal adjustment. Food prices gained 0.2 percent. It is too early to say that poor agricultural conditions in the Midwest pushed up June food prices, but that effect is likely to be seen in coming months. Ethanol prices are already climbing and that will put upward pressure on gasoline prices. Excluding food and energy, the core CPI increased by 0.2 percent for the fourth consecutive month. Industrial production for June increased by 0.4 percent. Manufacturing output for June was up by 0.7 percent, with solid gains in machinery (up 2.3 percent) and motor vehicles (up 1.9 percent). The NAHB housing market index for July increased to 35, a new 5-year high for the index. Housing starts for June increased by 6.9 percent to a 760,000 unit rate. This is still weak by historical standards, but it is the strongest building rate since October 2008. June permits for new construction fell by 3.7 percent to a 755,000 unit rate, giving back some of the large gain in May; however, the trend still looks good. Existing home sales unexpectedly fell by 5.5 percent, to a 4.47 million unit rate, the weakest sales rate since October 2011. The National Association of Realtors is blaming a reduced inventory of distressed homes for the drop in sales, further stating that buyer interest remains solid. The non-seasonally adjusted median sales price of an existing home increased again in June, now up 7.9 percent from a year ago. The June Leading Economic Index fell by 0.3 percent, the second monthly decline in the last three months. Initial claims for unemployment insurance increased by 34,000 for the week ending July 14.
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