Staying Neutral: June 16 – 20

The Fed does not move on short-term rates. Here are the five things we learned from U.S. economic data released during the week ending June 20.

The Fed held still for now but expects to make two rate cuts by year’s end. The statement released following this past week’s Federal Open Market Committee (FOMC) meeting notes the U.S. economy continues to “expand at a solid pace,” with “low” unemployment and “somewhat elevated inflation.” It views economic uncertainty as “elevated,” but less so than recently. As a result, the FOMC voted unanimously to keep the fed funds rate target at 4.25 percent – 4.50 percent while continuing to shed Federal Reserve holdings of Treasuries and mortgage-backed securities. The median economic projection from the meeting participants has the U.S. economy expanding 1.4 percent this year and 1.6 percent in 2026, core inflation at 3.1 percent this year and 2.4 percent in 2026, and the unemployment rate at 4.5 percent for both years. The mid-point forecast foresees two quarter-point rate cuts in the fed funds target this year and one next year.

Retail sales slumped in May. The Census Bureau estimates retail and food services sales fell 0.9 percent to a seasonally adjusted $715.4 billion. Sales were 3.3 percent ahead of their year-ago pace. Sales over the past three months were 4.5 percent above the comparable 2024 months. Sales at motor vehicle/parts dealers plummeted (-3.5 percent) and gas stations (-2.0 percent). Net of both, retail sales were off 0.1 percent for the month but were 4.6 percent above year-ago levels. Sales improved at sporting goods/hobby retailers (+1.3 percent), furniture stores (+1.2 percent), and apparel retailers (+0.8 percent). Sales fell at retailers focused on building materials (-2.7 percent), groceries (-0.8 percent), and electronics/appliances (-0.5 percent), and at restaurants/bars (-0.9 percent).

Manufacturing production inched up in May. The Federal Reserve reports manufacturing production increased a seasonally adjusted 0.1 percent following a half percentage point drop in April. Durable goods production increased 0.4 percent (including a 4.9 percent jump for motor vehicles) but declined 0.2 percent for nondurables. Overall industrial production slowed 0.2 percent following April’s 0.1 percent advance. Output fell for both mining (-0.1 percent) and utilities (-2.9 percent). Over the past year, manufacturing (+0.5 percent) and overall industrial production (+0.2 percent) grew modestly.

Housing starts fell in May. Privately owned housing starts declined 9.8 percent to a seasonally adjusted annualized rate (SAAR) of 1.256 million. The Census Bureau measure was 4.6 percent below its year-ago reading. Single-family home starts edged up 0.4 percent during the month, compared to a 30.4 percent drop for multi-family units. Looking towards the future, the annualized count of issued building permits slumped 2.0 percent to 1.393 million (-1.0 percent versus May 2024). Single-family home permits declined by 2.7 percent, while those for multi-family units increased by 1.4 percent. Completions rose 5.4 percent to an annualized 1.526 million units (-2.2 percent versus May 2024).

Forward-looking economic measures slipped in May. The Conference Board’s Leading Economic Index (LEI) fell 0.1 percent to 99.0 (2016=100). This was a significant improvement over the 1.0 percent drop in April, leaving the index down 2.7 percent over the past six months. Five of ten LEI components made positive contributions, led by the stock market, manufacturing hours worked, and new orders for civilian non-aircraft capital goods. The Coincident Economic Index (CEI) inched up 0.1 percent to 115.1, leaving the measure up 1.3 percent over the past six months. Three of four CEI components made positive contributions: personal income, manufacturing/trade sales, and nonfarm payrolls. The Lagging Economic Index (LAG) grew 0.4 percent to 119.6 (+0.8 percent over the past six months). The Conference Board expects “a significant slowdown in economic growth” but not a recession in 2025.

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

• Jobless Claims (Week ending June 14, 2025, First-Time Claims, seasonally adjusted): 245,000, -5,000 vs. the previous week, +8,000 vs. the same week a year earlier). 4-week moving average: 245,500 (+5.8% vs. the same week a year earlier).
• Import Prices (May 2025, All Imports, not seasonally adjusted): Unchanged vs. April 2025; +0.2% vs. May 2024. Nonfuel Imports: +0.3% vs. April 2025; +1.7% vs. May 2024.
• Export Prices (May 2025, All Exports, not seasonally adjusted): -0.9% vs. April 2025; +1.7% vs. May 2024. Non-agricultural Exports: -1.0% vs. April 2025; +1.7% vs. May 2024.
• Housing Market Index (June 2025, Index (>50 = More Homebuilders View the Housing Market as “Good” than “Poor,” seasonally adjusted): 32 (May 2025: 34; June 2024: 43).
• Business Inventories (April 2025, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.657 trillion (Unchanged vs. March 2025; +2.2% vs. April 2024).
• Treasury International Capital Flows (April 2025, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$50.6 billion (March 2025: +$183.6 billion; April 2024: +$72.3 billion).

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