U.S. data released this week were consistent with an economy that has warmed up a bit after a chilly Q1.
Retail sales beat expectations for the second month, increasing in May by 0.5 percent. Already strong April retail sales growth was revised up to 1.3 percent. In both months headline sales were supported by higher prices at gasoline stations. Most categories were positive in May, including gasoline station sales which were up by 2.1 percent.
The National Federation of Independent Business’s business optimism index ticked up in May to 93.8, still somewhat low by historical standards. Expectations for the economy improved by becoming less negative and hiring plans gained strength.
The import price index rose for the third consecutive month in May, up by 1.4 percent as prices for fuel imports rose by 16.2 percent. Both the fuel and nonfuel component added to overall inflation in May.
The producer price index for final demand increased by a strong 0.4 percent in May, boosted by energy prices which gained 2.8 percent. Over the last 12 months the final demand PPI was up by just 0.8 percent.
Lower food prices kept the consumer price index in check, gaining 0.2 percent in May, below expectations. The energy sub-index was up 1.2 percent for the month after increasing by 3.4 percent in April. The food index, which represents around 14 percent of the total basket, about double the weighting for energy, declined by 0.2 percent in May. Over the last 12 months headline CPI is up by 1.0 percent, still weak, but trending up.
Initial claims for unemployment insurance increased by 13,000 for the week ending June 11, to hit 277,000. Continuing claims gained 45,000 for the week ending June 4, reaching 2,157,000.
Business inventories increased by 0.1 percent in April, led by wholesale inventories which increased by 0.6 percent as petroleum prices increased.
Industrial production fell by 0.4 percent in May as manufacturing output dipped and utilities reset after surging in April. Mining output increased for the first time in nine months. The U.S. drilling rig count is flattening out.
Housing starts were little changed in May, supported by a gain in the West. Permits were up just slightly.
The Federal Reserve kept the fed funds rate unchanged at the June 14/15 FOMC meeting. The dot plot, showing the expectations of the fed funds rate by FOMC members, was revised lower yet again. Expectations are now consistent with one-to-two fed funds rate hikes this year. We think that one rate hike is the mostly likely outcome, and that will not come until December.
The BREXIT vote on June 23 is casting a darker shadow over financial markets, suppressing long term interest rates. The potential for easier monetary policy from other central banks is weighing on the Fed.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-17-2016.