Interest rates rise while the economic outlook diminishes. Here are the five things we learned from U.S. economic data released during the week ending June 17.
The Fed takes an aggressive next step. The statement released following the past week’s meeting of the Federal Open Market Committee (FOMC) asserts that the U.S. economy “appears to have picked up” following Q1 dropped in The Gross Domestic Product (GDP). It also notes that unemployment was “low,” while inflation “remains elevated.” The Russian invasion of Ukraine and the recent lockdown in China were adding to inflation. As a result, the committee voted to raise the fed funds rate by 75 basis points to a range of 1.50-1.75 percent. This was the biggest rate hike by the Fed since 1994. Also added to the statement was this hawkish line: “The Committee is strongly committed to returning inflation to its 2 percent objective.” One FOMC member—Esther George—preferred a 50-basis rate hike.
Released at the same time were economic projections by the meeting’s participants. They now see moderate economic growth, with GDP up 1.7 percent this year and next year and improving slightly to a 1.9 percent increase in 2024. They see unemployment staying low at 3.7 percent by the end of this year and increasing slightly to 4.1 percent by 2024. The meeting participants also expected inflation to come down, averaging 5.2 percent this year, 2.6 percent next year, and 2.2 percent in 2024. Their median forecast for core inflation (without energy and food) is 4.3 percent this year, 2.7 percent next year, and 2.3 percent in 2024. As for short-term hikes: the median projection has the fed funds rate up by another 1.75 percentage points before the end of this year and an additional half-point hike in 2023.
Retail sales declined in May. The Census Bureau estimates retail and food services sales decreased 0.3 percent to a seasonally adjusted $672.9 billion, following a 0.7 percent rise in April. Sales over the past three months were up 3.6 percent over the previous three-month period and 7.7 percent over the same period in 2021. Sales fell 3.5 percent at motor vehicle/parts dealers, while higher prices pushed up sales at gas stations by 4.0 percent. Net of both, core retail sales inched up 0.1 percent in May and 7.9 percent from a year earlier. Sales increased at retailers focused on groceries (+1.2 percent), sporting goods/hobbies (+0.4 percent), and building materials (+0.2 percent), along with a 0.7 percent bump at restaurants/bars. Sales decreased at electronics/appliance stores (-1.3 percent) and furniture retailers (-0.9 percent).
Forward-looking economic measures indicate slow economic activity over the near term. The Conference Board’s Leading Economic Index dropped 0.4 percent in May, matching a similar drop during the prior month. The LEI reading of 118.3 was off 0.3 percent from six months earlier. Only five of ten LEI components made positive contributions, while the falling stock market and consumers’ economic expectations helped drag the index. The coincident index inched up 0.2 percent to a reading of 108.8 (+1.3 percent over the past six months). Three of four coincident index components made positive contributions: nonfarm payrolls, personal income, and manufacturing/trade sales. The lagging index rose 0.8 percent in May and 3.7 percent over the past six months to 112.9. The press release said the results suggest “weaker economic activity is likely in the near term” and warned that the Fed’s rate hikes may “dampen economic growth even further.”
Wholesale prices surged again in May. The Producer Price Index (PPI) for final demand jumped a seasonally adjusted 0.8 percent, leaving the Census Bureau measure up 10.8 percent over the past year. The core wholesale price measure—net of energy, food, and trade services—gained 0.5 percent during the month and 6.8 percent over the past year. PPI for final demand goods rose 1.4 percent, as energy prices swelled 5.0 percent and core goods (net of energy and food) jumped 0.7 percent. Food PPI held steady in May. PPI for final demand services advanced 0.4 percent.
Housing starts sharply slowed in May. Privately-owned housing starts plummeted 14.4 percent to a seasonally adjusted annualized rate of 1.549 million units. The Census Bureau data series was 3.5 percent under its year-ago reading. Starts fell for single- (-9.2 percent) and multi-family (-26.8 percent) homes. Looking towards the future, the number of issued building permits slumped 7.0 percent to an annualized 1.695 million units, up 0.2 percent from a year earlier. Permits dropped 5.5 percent for single-family homes and 10.0 percent for multi-family units. Meanwhile, completions rose 9.1 percent to an annualized 1.465 million, 9.3 percent ahead of their year-ago pace.
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending June 11, 2022, First-Time Claims, seasonally adjusted): 229,000, -3,000 vs. the previous week, -200,000 vs. the same week a year earlier). 4-week moving average: 218,500 (-49.1% vs. the same week a year earlier).
- Import Prices (May 2022, All Imports, not seasonally adjusted): +0.6% vs. April 2022; +11.7% vs. May 2021. Nonfuel Imports: -0.3% vs. April 2022; +5.9% vs. May 2021.
- Export Prices (May 22, All Exports, not seasonally adjusted): +2.8% vs. April 2022; +18.9% vs. May 2021. Nonagricultural Exports: +2.9% vs. April 2022; +19.3% vs. May 2021.
- Small Business Optimism Index (May 2022, Index (1986=100), seasonally adjusted): 93.1 (vs. April 2022: 93.2; May 2021: 99.6).
- Housing Market Index (June 2022, Index (>50=More Homebuilders View the Housing Market as “Good” Versus Being “Bad”), seasonally adjusted): 67 (vs. May 2022: 69; June 2021: 83).
- Treasury International Capital (April 2022, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$51.0 billion (vs. March 2022: +$20.2 billion; vs. April 2021: +$93.5 billion).
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