Why The U.S. Economy is Heating Up

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:

Beige Book Survey Says: Modest Growth

On Wednesday, the Fed released its latest Beige Book survey. It found that most of its 12 districts reported that growth was continuing at a “modest pace.” The Beige Book survey also reiterated that the U.S. economy remained on track for 2% economic growth in 2016, despite a weak first quarter. Essentially, the Beige Book survey painted a picture of a Goldilocks economy that was neither too hot nor too cold, but just right. Namely, the U.S. is experiencing steady growth, but not enough to justify major key interest rate increases.

Unexpected Wholesale Inflation in June

The Labor Department announced that the Producer Price Index (PPI) rose 0.5% in June. This represents the biggest surge in wholesale inflation in a year. This was truly a surprise, since economists were expecting the June PPI to increase just 0.2%. Wholesale energy prices rose 4.1% in June and were largely responsible for the surge. Excluding food, energy and services, wholesale prices rose 0.3% in June, while excluding just food and energy, the core PPI rose 0.4%. Since crude oil prices are now falling, it will be interesting whether or not this wholesale inflation will persist in the upcoming months.

Retail Sales Rebound

The Commerce Department announced that retail sales rose 0.6% in June, which was substantially higher than economists’ consensus estimate of a 0.1% gain. May’s retail sales were revised down to a 0.2% increase, down from the previous estimate of a 0.5% gain. In June, sales at home improvement stores surged 3.9%, the largest such increase in more than six years. Auto sales only rose 0.1% in June, while restaurant sales declined 0.3% and clothing sales declined 1%. Despite these soft spots, most other retail categories posted strong sales growth. Excluding auto sales and gasoline, retail sales rose 0.7% in June. In the past 12 months, retail sales have risen at a 2.7% annual pace through June, up from a 2.2% annual pace at the end of May. As a result, it is obvious that the pace of the consumer spending is picking up.

Industrial Production Heats Up

The other news on Friday was the Fed’s announcement that industrial production rose 0.6% in June, which was slightly higher than economists’ consensus estimate of a 0.5% increase. Industrial production is now running at the fastest pace since last July; however, it is being a bit distorted by the fact that utility output rose 2.4% in June due to abnormally hot weather. Manufacturing output rose 0.4% in June, led by a 5.9% surge in automotive production. Overall, this was an encouraging report, despite the distortion from the hot summer weather.

That’s all I have for you this week; I’ll be back online on Monday with your weekly ratings changes.

Have a great weekend,

Louis Navellier

Louis Navellier

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