The U.S. Economy In Review: Retail Sales, Inflation and More

This week, we were hit by a tidal wave of U.S. economic reports from both private sources as well as governmental agencies. Now, I understand that not everyone enjoys staring at pages of economic data as much as I do, so in today’s blog post I cover just the highlights of these market moving reports. Let’s take a look.

The U.S. Consumer

U.S. Retail Sales declined 0.5% in June. This came in below economists’ expectations of a 0.4% rise and represents the third consecutive month that retail sales have fallen. Breaking it down further, sales were down 0.6% for motor vehicles, 0.8% for electronics and 1.8% at gas stations. The silver lining to this is that while some of the big box retailers aren’t performing up to par, there are a number of high flying niche and specialty retailers that continue to grow same-store sales growth. American consumers are still spending, but it seems like they’re just being a lot pickier with where they put it.

The Consumer Price Index remained unchanged in June, following a 0.3% drop in May. Economists had expected the measure of inflation to rise 0.1%. Excluding food and energy prices, which tend to be more volatile, core CPI rose 0.2%; this matched the consensus estimate. Prices rose for apparel, new motor vehicles and medical care while housing costs remained flat. This is the continuation of a trend that has lasted several months: At this current time, inflation does not appear to be a major threat to the U.S. economy.

U.S. Manufacturing

Industrial Production increased by 0.4% in June. This followed a 0.2% drop in May and topped economists’ expectations that output would remain flat. While defense and space equipment output fell along with construction output, auto production and machinery output advanced nearly 2%. For some time now, the manufacturing sector was a source of concern for many economists and lawmakers; now it looks like there may be a turnaround. Nonetheless, I want to see a few more months’ worth of accelerating output before drawing any big conclusions.

The Housing Market

Housing Starts rose to the highest level in nearly four years, rising 7% to an annual rate of 760,000. This trumped economists’ expectations that builders would break ground on 715,000 homes.

Building Permits fell 4% to 755,000, weighing in below the 765,000 consensus. However, many economists don’t see this as reason for concern because for several months building permits have been far outpacing housing starts. This latest dip is seen more as a sign that the two measures are coming into balance.

Existing Home Sales dropped 5.4% in June to a 4.37 million annual rate, below the 4.65 million consensus estimate. The good news is that sales are still up 4.5% over the same period last year, representing the twelfth consecutive year-over-year gain. Also, median prices rose for the third month in a row; prices are now 7.9% higher than June 2011.

The Jobs Market

Jobless Claims jumped by 34,000 to a seasonally adjusted rate of 386,000. The consensus called for claims to rise to just 360,000. Meanwhile, the four-week moving average, which is a more stable measure of initial claims, fell by 1,500 to 375,500. After last week’s plunge, a rebound is somewhat expected. However, one thing to keep in mind is that July is usually a particularly volatile month for jobless claims because this is the time of year when automakers shut down their plants temporarily to prepare for new models.

The Big Picture

The Index of Leading Economic Indicators fell 0.3% to 95.6 last month. Economists had forecast a 0.2% dip. Six of the 10 indicators fell, most notably business orders, consumer confidence and building permits. Meanwhile the interest-rate spread, manufacturing hours, credit and manufacturing orders helped prop up the index. I’m not going to sugar-coat it; June’s reading was pretty weak. However, I won’t make any sweeping generalizations about the economy until I see next week’s second-quarter Gross Domestic Product results.

That’s all that I have for this week; be sure to check back in to my daily blog next week as we’re in the middle of earnings season and who knows what kind of market-moving events will occur.

Have a great weekend,

Louis Navellier

Louis Navellier

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