A Robust Spring: June 14 – 18

Even the Fed sees a brighter future. Here are the five things we learned from U.S. economic data released during the week ending June 18.


The Fed does not make a move but has moved up its forecast for its next rate increase (Don’t worry: it’s not soon). The policy statement released after the past week’s meeting of the Federal Open Market Committee was essentially unchanged from that of late April, but a bit more optimistic. Last week’s statement noted how COVID-19 vaccinations, along with “strong policy support,” have resulted in “strengthened” economic and labor market activity. Nonetheless, the committee notes that “risks to the economic outlook remain.” Hence, the statement repeated the statement that the Fed would “aim to achieve inflation moderately above 2 percent for some time so that inflation averages two percent over time.” Consistent with that, the committee voted unanimously to keep the fed funds target rate at near-zero percent and continue the Fed’s Treasury and agency mortgage-backed securities purchases.

The updated economic forecasts from the Committee members present a more optimistic, if more inflationary, outlook. Members now have a median prediction that the U.S. economy will expand 7.0 percent this year (up from March’s 6.5 percent forecast) and 3.3 percent next year. Moreover, they expect inflation will grow 3.4 percent in 2021 (up from March’s 2.4 percent forecast) and 2.1 percent next year, with core inflation predicted at 3.0 percent. As a result, the median projection among Committee members has them raising the fed funds target rate for the first time in 2023 as opposed to 2024. However, seven of the 18 FOMC forecasts indicate a short-term interest rate hike was likely next year.

Forward-looking indicators points to a robust recovery for some time. The Conference Board’s Leading Economic Index (LEI) added 1.5 points in May, following gains of 1.5 and 1.4 in March and April. Seven of ten LEI components positively contributed to the index, led by recent sharp declines in jobless claims. The coincident index added 4/10ths of a point to a reading of 105.1 after advancing by 1.3 and 0.3 during the prior two months. All four coincident index components made positive contributions. The lagging index fell by 2.3 points in May to a reading of 103.0. The Conference Board forecasts the U.S. economy is expanding at a nine percent annualized pace during the current quarter and will grow 6.6 percent for all of 2021.

Retail cooled from its recently torrid pace (but remained rather hot) in May. The Census Bureau estimates retail and food services sales slowed 1.3 percent during the month to a seasonally adjusted $620.2 billion. Sales over March, April, and May were a whopping 36.2 percent ahead of the comparable three months in 2020 (which, of course, was during the worst of the pandemic lockdown). A lack of inventory hurt sales at auto dealers (-3.7 percent) while gasoline sales moved up 0.7 percent. Net of both, core retail sales declined 0.8 percent, but activity during the three months of March, April, and May were up 27.4 percent versus a year earlier. During the month, sales declined at retailers focused on building materials (-5.9 percent), appliances/electronics (-3.4 percent), furniture (-2.1 percent), and sporting goods/hobbies (-0.8 percent). Sales improved at apparel stores (+3.0 percent), health/personal care retailers (+1.8 percent), department stores (+1.6 percent), and grocery stores (+1.2 percent). Restaurants/bars continued their comeback, with sales soaring 1.8 percent in May and 70.6 percent from a year earlier.

Manufacturing output grew in May, but factories remained underutilized. The Federal Reserve reports manufacturing output swelled a seasonally adjusted 0.9 percent during the month after slipping 0.1 percent in April. A surge in automobile production led to a 1.0 percent increase in durable goods production, while nondurables output grew 0.8 percent (boosted by apparel, printing, and chemicals). Automobile production remained significantly below recent averages, however, due to semiconductor shortages. Overall industrial production rose 0.8 percent after having eked out a 0.1 percent advance in April. Mining and utilities both saw output gains (+1.2 percent and +0.1 percent, respectively). Factory utilization grew by 7/10ths of a percentage point to 75.6, still below its 1972-2020 average of 78.2 percent. Similarly, while overall industrial capacity utilization improved by 6/10ths of a percentage point, the reading of 75.2 percent was below the historical average of 79.2 percent.

A fifth straight month with a sizable jump in wholesale prices. The Producer Price Index (PPI) for final demand rose a seasonally adjusted 0.8 percent in May, following gains of at least 0.6 percent during every month thus far in 2021. The core wholesale price measure, net of energy, food, and trade services, surged 0.7 percent during the month, matching its April gain. Energy and food wholesale prices also experienced significant increases (+2.2 percent and +2.6 percent, respectively). Prices for all goods jumped 1.5 percent while those for services advanced 0.6 percent. The Bureau of Labor Statistics estimates final demand PPI has risen 6.6 percent over the past year while the 12-month comparable for core PPI was +5.3 percent.

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending June 12, First-Time Claims, seasonally adjusted): 412,000, +37,000 vs. the previous week, -1,060,000 vs. the same week a year earlier). 4-week moving average: 395,000 (-75.7% vs. the same week a year earlier).
  • Import Prices (May 2021, All Imports): +1.1% vs. April 2021, +11.3% vs. May 2020. Nonfuel Imports: +0.9% vs. April 2021, +6.0% vs. May 2020.
  • Export Prices (May 2021, All Exports): +2.2% vs. April 2021, +17.4% vs. May 2020. Nonagricultural Exports: +1.7% vs. April 2021, +15.7% vs. May 2020.
  • Housing Starts (May 2021, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.572 million (+3.6% vs. April 2021, +50.3% vs. May 2020).
  • Housing Market Index (June 2021, Index (>50=More Homebuilder View Housing as “Good” Versus as “Bad”), seasonally adjusted): 81 (vs. May 2021: 83, vs. June 2020: 58).
  • Treasury International Capital Flows (April 2021, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$93.2 billion (vs. March 2021: +$208.1 billion, vs. April 2020: -$160.6 billion).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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