We are another week closer to the expected September 18th start to QE3 calibration. However, in aggregate, this week’s data did not solidify that expectation by suggesting that the U.S. economy was improving quickly. Retail sales for June were disappointing. Despite the increase in auto sales, up to a 15.9 million unit rate, total retail sales gained just 0.4 percent for the month. Non-auto retail sales were unchanged for the month. Part of the drag to June sales came from building materials which eased by 2.2 percent.
Gains in business inventories in May were weak, adding to concerns about a weak print for second quarter GDP. Total business inventories increased by just 0.1 percent in May after gaining just 0.2 percent in April.
The CPI gained 0.5 percent for the month as energy prices surged with increasing tension in the Middle East and North Africa. The energy index increased by 3.4 percent in June while retail gasoline prices were up 6.3 percent. The core CPI (less food and energy) increased by 0.2 percent for the second month in a row.
Industrial production for June stepped up by 0.3 percent, the first monthly increase since March. Manufacturing output gained 0.3 percent, aided by auto production. Total motor vehicles assemblies increased by 2.1 percent in June, reflecting stronger sales. Overall capacity utilization remains weak at 77.8 percent, about where it was at the start of the year.
Residential construction data was also weak. Housing starts slipped by 9.9 percent in June to an 836,000 unit annual rate. This appears to be part of a normal correction after a strong run, but it does bear watching over the next couple of months. Starts peaked in March at a 1.005 million unit rate and have been on a three-month declining trend since. Housing starts look like they have gotten ahead of new home sales. Permits for new residential construction also fell in June, down by 7.5 percent to a 911,000 unit annual rate. On a year-ago basis permits are still up a healthy 16.1 percent.
The Fed’s Beige Book said that overall economic activity increased at a moderate pace from early May through mid-June, but that is at odds with the widely held expectation for weak Q2 real GDP growth.
The Conference Board’s Leading Economic Index for June was unchanged following a modest 0.2 percent gain in May. The unexpected drop in building permits pulled the index down.
Initial claims for unemployment insurance decreased by 24,000 for the week ending July 13, to hit 334,000. Seasonal issues relating to summertime auto production appear to be creating volatility in the data.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly071913