Wednesday August 21 2019
Fed Policymakers Saw July Cut as Mid-Cycle Adjustment
Federal Reserve | Joana Ferreira |

Fed officials viewed their interest-rate cut as an adjustment that would help counter the effects on the outlook of weak global growth and trade policy uncertainty while promoting a faster return of inflation to the central bank's target, minutes of the July meeting showed. Policymakers also noted that further policy action would be guided by incoming information and its implications for the economic outlook and that any appearance of following a preset course should be avoided.

Excerpts from the minutes of the Federal Open Market Committee, July 30-31, 2019:

In their discussion of monetary policy decisions at this meeting, those participants who favored a reduction in the target range for the federal funds rate pointed to three broad categories of reasons for supporting that action.

-First, while the overall outlook remained favorable, there had been signs of deceleration in economic activity in recent quarters, particularly in business fixed investment and manufacturing. A pronounced slowing in economic growth in overseas economies—perhaps related in part to developments in, and uncertainties surrounding, international trade—appeared to be an important factor in this deceleration.
-Second, a policy easing at this meeting would be a prudent step from a risk-management perspective. Despite some encouraging signs over the intermeeting period, many of the risks and uncertainties surrounding the economic outlook that had been a source of concern in June had remained elevated, particularly those associated with the global economic outlook and international trade.
-Third, there were concerns about the outlook for inflation. A number of participants observed that overall inflation had continued to run below the Committee's 2 percent objective, as had inflation for items other than food and energy. Several of these participants commented that the fact that wage pressures had remained only moderate despite the low unemployment rate could be a sign that the longer-run normal level of the unemployment rate is appreciably lower than often assumed.

A couple of participants indicated that they would have preferred a 50 basis point cut in the federal funds rate at this meeting rather than a 25 basis point reduction.

Several participants favored maintaining the same target range at this meeting, judging that the real economy continued to be in a good place, bolstered by confident consumers, a strong job market, and a low rate of unemployment. These participants acknowledged that there were lingering risks and uncertainties about the global economy in general, and about international trade in particular, but they viewed those risks as having diminished over the intermeeting period. In addition, they viewed the news on inflation over the intermeeting period as consistent with their forecasts that inflation would move up to the Committee's 2 percent objective at an acceptable pace without an adjustment in policy at this meeting. Finally, a few participants expressed concerns that further monetary accommodation presented a risk to financial stability in certain sectors of the economy or that a reduction in the target range for the federal funds rate at this meeting could be misinterpreted as a negative signal about the state of the economy.

In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a preset course. Most participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment, in response to the evolution of the economic outlook over recent months. A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook.

Friday August 16 2019
US Consumer Sentiment Drops to 7-Month Low
University of Michigan | Joana Ferreira |

The University of Michigan's consumer sentiment for the US fell to 92.1 in August 2019 from 98.4 in the previous month and well below market consensus of 97.2, a preliminary estimate showed. That was the lowest reading since January.

The consumer expectations sub-index declined to 82.3 in August from the previous month's 90.5; while the gauge for current economic conditions decreased to 107.4 from 110.7.

Inflation expectations for the year ahead picked up to 2.7 percent in August from 2.6 percent in July; and the 5-year outlook advanced to 2.6 percent from 2.5 percent.

"Consumer sentiment declined in early August to its lowest level since the start of the year. The early August losses spanned all Index components. Although the Expectations Index recorded more than twice the decline in August as the Current Conditions Index (-8.2 versus -3.3), the Current Conditions Index fell to its lowest level since late 2016. Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects. Consumers strongly reacted to the proposed September increase in tariffs on Chinese imports, spontaneously cited by 33% of all consumers in early August, barely below the recent peak of 37%. Although the announced delay until Christmas postpones its negative impact on consumer prices, it still raises concerns about future price increases. The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession. Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession. Falling interest rates have long been associated with the start of recessions—see the featured chart. Perhaps the most important remaining pillar of strength for consumer spending is favorable job and income prospects, although the August survey indicated some concerns about the future pace of income and job gains. It is likely that consumers will reduce their pace of spending while keeping the economy out of recession at least through mid 2020." Surveys of Consumers chief economist, Richard Curtin, said.

Friday August 16 2019
US Housing Starts Fall for 3rd Straight Month
US Census Bureau | Joana Ferreira |

US housing starts dropped 4.0 percent from a month earlier to a seasonally adjusted annual rate of 1,191 thousand units in July 2019, compared to market expectations of 1,257 thousand and following a revised 1.8 percent fall in June. That was the third consecutive month of decline in homebuilding, likely disrupted by Tropical Storm Barry.

Starts for the volatile multi-family housing segment tumbled 16.2 percent to a rate of 315 thousand units in July; while single-family homebuilding, which accounts for the largest share of the housing market, rose 1.3 percent to a rate of 876 thousand units, the highest level in six months. Declines in housing starts were recorded in the South (-4.3 percent to 600 thousand), Northeast (-13.8 percent to 94 thousand) and Midwest (-6.2 percent to 181 thousand), while an increase was seen in the West (1.3 percent to 316 thousand).

Building permits surged 8.4 percent to a rate of 1,336 thousand units in July, while markets had expected a 3.1 percent advance. That was the largest gain in permits since June 2017, boosted by a 21.8 percent jump in the volatile multi-family housing segment. In addition, single-family authorizations rose 1.8 percent to 838 thousand, the highest level in eight months. Across regions, permits were higher in the South (10.7 percent to 685 thousand) and West (13.7 percent to 365 thousand), but declined in the Northeast (-3.3 percent to 117 thousand) and Midwest (-1.2 percent to 169 thousand).

Year-on-year, housing starts increased 0.6 percent while building permits advanced 1.5 percent.

Thursday August 15 2019
US Industrial Output Falls Unexpectedly
Federal Reserve | Joana Ferreira |

US industrial output dropped 0.2 percent from a month earlier in July 2019, following a revised 0.2 percent growth in June and missing market forecasts of a 0.1 percent gain.

Manufacturing output declined 0.4 percent in July, with durables, nondurables, and other manufacturing (publishing and logging) all posting decreases. Production fell for most major durable goods categories. The largest declines were recorded by wood products, machinery, and nonmetallic mineral products, while the only sizable gain was registered by aerospace and miscellaneous transportation equipment. Paper products posted the only increase among nondurables; the indexes for textile and product mills, for printing and support, and for plastics and rubber products each fell 1.0 percent or more.

The index for mining declined 1.8 percent, as Hurricane Barry caused a sharp but temporary decline in oil extraction in the Gulf of Mexico. Still, the index was 5.5 percent above its year-earlier level.

The output of utilities rose 3.1 percent in July after having fallen a similar amount in June.

Capacity utilization for the industrial sector decreased 0.3 percentage point in July to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average. Capacity utilization for manufacturing declined 0.4 percentage point in July to 75.4 percent, a rate that is 2.9 percentage points lower than its long-run average. The operating rate for durable manufacturing declined 0.3 percentage point, and the rate for nondurable manufacturing decreased 0.5 percentage point. The utilization rate for mining fell to 89.2 percent, which is about 2 percentage points above its long-run average. The rate for utilities increased 2.1 percentage points but remained well below its long-run average.

Thursday August 15 2019
US Retail Sales Rise More than Expected
US Census Bureau | Joana Ferreira |

US retail trade jumped 0.7 percent from a month earlier in July 2019, following a revised 0.3 percent increase in June and easily beating market expectations of 0.3 percent, boosted by purchases of a variety of goods.

10 of 13 major retail categories showed month-over-month increases.

Receipts at service stations rose 1.8 percent (vs -2.3 percent in June) reflecting higher gasoline prices; and those at furniture stores advanced 0.3 percent (vs -0.4 percent in June). In addition, sales at building material stores gained 0.2 percent, the same pace as in June; and those at clothing stores increased 0.8 percent, compared to a 0.1 percent fall in the previous month. Online and mail-order retail sales jumped 2.8 percent, the most in six months, likely boosted by Inc's Prime Day; and receipts at restaurants and bars accelerated 1.1 percent (vs 0.7 percent in June). Sales also rose at: electronics & appliance stores (0.9 percent vs -0.7 percent); food & beverage stores (0.6 percent vs 0.8 percent); general merchandise stores (0.6 percent vs 0.1 percent); and miscellaneous store retailers (0.3 percent vs -0.4 percent).

On the other hand, auto sales fell 0.6 percent in July (vs 0.3 percent in June) and spending at hobby, musical instrument and book stores declined 1.1 percent (vs 0.6 percent in June). Receipts at health & personal care stores also dropped 0.2 percent, compared to a 0.6 percent gain in June.

Excluding automobiles, gasoline, building materials and food services, retail sales climbed 1 percent last month after a 0.7 percent advance in June. These so-called core retail sales correspond most closely with the consumer spending component of GDP.

Year-on-year, retail sales grew 3.4 percent, little-changed from 3.3 percent in the previous month.

Thursday August 15 2019
US Jobless Claims Rise More than Expected
DOL | Luisa Carvalho |

The number of Americans filling for unemployment benefits increased by 9 thousand to 220 thousand in the week ended August 10th 2019 from the previous week's upwardly revised 211 thousand and beating market expectations of 214 thousand. It is the highest level since the week ended June 29th.

The 4-week moving average was 213,750, an increase of 1,000 from the previous week's revised average. The previous week's average was revised up by 500 from 212,250 to 212,750. 

According to unadjusted data, the biggest rises were reported in California (+5,887), New York (+682) and Indiana (+513), while the largest decreases were seen in South Carolina (-470) and Florida (-459).

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending August 3, unchanged from the previous week's unrevised rate. 

The advance number for seasonally adjusted insured unemployment during the week ending August 3 was 1,726,000, an increase of 39,000 from the previous week's revised level. Figures came above market consensus of 1,690,000. The previous week's level was revised up 3,000 from 1,684,000 to 1,687,000. The 4-week moving average was 1,697,250, an increase of 9,250 from the previous week's revised average. The previous week's average was revised up by 750 from 1,687,250 to 1,688,000. 

Tuesday August 13 2019
US Inflation Rate Rises Above Forecast
BLS | Joana Ferreira |

The US annual inflation rate rose to 1.8 percent in July 2019 from a four-month low of 1.6 percent in the previous month and above market consensus of 1.7 percent, boosted by food prices and a range of other goods while energy deflation eased.

Food inflation stood at 1.8 percent in July, little-changed from 1.9 percent in June, due in particular to food away from home (3.2 percent vs 3.1 percent) while costs of food at home rose at a slower pace (0.6 percent vs 0.9 percent). Additional price increases were recorded for transportation services (0.7 percent vs 0.9 percent); medical care services (3.3 percent vs 2.8 percent); shelter (3.5 percent, the same as in June); new vehicles (0.3 percent vs 0.6 percent); and used cars and trucks (1.5 percent vs 1.2 percent).

Energy prices dropped 2.0 percent in July, following a 3.4 percent tumble in the previous month. Within energy commodities, gasoline cost declined 3.3 percent (vs -5.4 percent in June) and fuel oil went down 6.0 percent (vs -5.6 percent in June). Within energy services, electricity prices rebounded 0.5 percent (vs -0.3 percent in June) while utility (piped) gas service cost fell 2.9 percent (vs -2.1 percent in June). Declines were also seen in cost of apparel (-0.5 percent vs -1.3 percent) and medical care commodities (-0.4 percent vs -1.5 percent).

The core inflation rate, which excludes volatile items such as food and energy, edged up to 2.2 percent in July, also beating market consensus of 2.1 percent.

On a monthly basis, consumer prices advanced 0.3 percent in July, after a 0.1 percent gain in June and in line with market forecasts, mainly driven by increases in gasoline and shelter prices. Energy prices jumped 1.3 percent, boosted by gasoline (2.5 percent) and electricity (0.6 percent), though natural gas costs fell sharply (-1.8 percent). Increases were also seen in prices for shelter, medical care, airline fares, household furnishings and operations, apparel, and personal care, while new vehicles costs declined. Food prices were unchanged for the second month in a row.

Monday August 12 2019
US Budget Deficit Widens Sharply in July
US Treasury | Rafael Gonzalez |

The US budget deficit widened to USD 120 billion in July 2019 from USD 76.9 billion in the same month of the previous year and in line with market expectations.

Total outlays jumped 22.8 percent from a year earlier to USD 371 billion, with social security accounting for USD 88 billion, Medicare for USD 56 billion, national defense for USD 56 billion, health for USD 50 billion, income security for USD 38 billion, net interest for USD 35 billion, veterans' benefits & services for USD 17 billion, transportation for USD 9 billion, education for USD 7 billion and the remaining expenses for USD 15 billion. 

Meanwhile, total receipts rose 11.6 percent to USD 251.3 billion, with individual income taxes accounting for USD 127 billion, social insurance & retirement for USD 94 billion, excise taxes for USD 8 billion, miscellaneous for USD 8 billion, corporation income taxes for USD 7 billion, customs duties for USD 6 billion and estate & gift taxes for 1 billion.  

The deficit for the current fiscal year was USD 867 billion, higher than a USD 684 billion gap in the comparable period the year earlier.

When adjusted for calendar effects, the deficit was USD 129 billion last month versus USD 122 billion in the comparable prior period.

Thursday August 08 2019
US Jobless Claims Fall in Latest Week
DOL | Agna Gabriel |

The number of Americans filling for unemployment benefits decreased by 8 thousand to 209 thousand in the week ended August 3rd 2019 from the previous week’s revised level of 217 thousand and compared with market expectations of 215 thousand.

The 4-week moving average was 212,250, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 500 from 211,500 to 212,000. 

According to unadjusted data, the largest declines were seen in Illinois (-2,762); California (-1,973) and Michigan (-800) while the biggest rises were seen in Washington (+1,138); Pennsylvania (+917) and New Jersey (+841).

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending July 27, unchanged from the previous week's unrevised rate. 

The advance number for seasonally adjusted insured unemployment during the week ending July 27 was 1,684,000, a decrease of 15,000 from the previous week's unrevised level of 1,699,000. The 4- week moving average was 1,687,250, a decrease of 11,000 from the previous week's unrevised average of 1,698,250.

Monday August 05 2019
US Non Manufacturing Sector Growth Slows to 3-Year Low
ISM | Joana Ferreira |

The ISM Non-Manufacturing PMI for the United States dropped to 53.7 in July 2019 from 55.1 in the previous month and below market expectations of 55.5. The latest reading pointed to the weakest pace of expansion in the non-manufacturing sector since August 2016, as business activity and new orders grew at a softer pace.

There was a slowdown in business activity (53.1 vs 58.2 in June), new orders (54.1 vs 55.8), and prices paid (56.5 vs 58.9). Meanwhile, employment growth accelerated (56.2 vs 55.0).

According to the NMI®, 13 non-manufacturing industries reported growth. The non-manufacturing sector’s rate of growth continued to cool off. Respondents indicated ongoing concerns related to tariffs and employment resources. Comments remained mixed about business conditions and the overall economy.”

The 13 non-manufacturing industries reporting growth in July — listed in order — are: Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Construction; Information; Other Services; Finance & Insurance; Public Administration; Management of Companies & Support Services; Mining; and Health Care & Social Assistance. The five industries reporting a decrease are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Wholesale Trade; and Educational Services.