Last week, consumer and producer price indices showed inflation pressures continuing to gradually ease in July. Inflation's descent has occurred alongside a streak of stronger-than-expected economic data, and this week was no exception. Retail sales surprised to the upside in July, rising 0.7% over the month. Growth was fairly broad-based, with nine of the 13 retailer categories reporting increased sales (chart). Control group sales, which feeds into the Bureau of Economic Analysis' calculation of real personal consumption expenditures, rose an even stronger 1.0%. The outturn presents some upside risk to our 2.0% (annualized) call for real GDP in the third quarter; the Atlanta Fed's GDPNow model estimate for Q3 jumped nearly a full percentage point to 5.0% on the sales data.
The renewed strength in retail sales, if sustained, could lend some support to the factory sector in the coming months. Industrial production rose an above-consensus 1.0% in July, bolstered by a surge in utilities output and motor vehicle & parts manufacturing. While headline production came in better than expected, growth in manufacturing activity has been choppy this year—the overall level of manufacturing output stands just 0.2% above where it started 2023. Manufacturers remain broadly cautious of not overproducing and careful not to take on too much inventory in this tight credit environment.
Borrowing costs continue to rise. Freddie Mac's average 30-year fixed mortgage rate crested a 21-year high this week (see Credit Market Insights), driven in large part by the recent ascent in longer-dated Treasury yields (see Interest Rate Watch). Higher mortgage rates crimped the housing market for the better part of 2022. Still, home buying demand has found firmer footing this year, especially in the new home market where builders are offering price cuts, rate buy-downs and other incentives to move on their inventory. The trend improvement in new home sales has put some wind in the sails of residential construction (chart). Single-family building permits rose for the sixth straight month in July and are running at a 930,000-unit annual pace. Permits typically lead housing starts by one to two months, and the recent acceleration suggests that single-family home construction will continue to recover this year.
In short, activity data show the U.S. economy expanding at a solid rate. The underlying resilience has led many economists, us included, to upgrade their outlooks. The minutes from the July FOMC meeting rang with a similar tune, as the Committee noted "the economy had been showing considerable momentum." At the same time, the FOMC stressed that "inflation remained unacceptably high" and appeared resolute in holding its benchmark rate higher for longer to ensure price growth is sustainably brought down toward its 2% objective. The participants also cited upside risks to inflation that, if realized, would necessitate further policy tightening. The hawkish stance underpins our expectation that restrictive monetary policy, even in the face of strong activity, will tip the U.S. economy into a mild recession in early 2024.
This Week's State Of The Economy - What Is Ahead? - 08 April 2022
Wells Fargo Economics & Financial Report / Apr 11, 2022
Wednesday\'s release of the FOMC minutes stirred things up as comments showed committee members agreeing that elevated inflation and the tight labor market at present warrant balance sheet reduction to begin soon.
This Week's State Of The Economy - What Is Ahead? - 18 October 2019
Wells Fargo Economics & Financial Report / Oct 19, 2019
Personal consumption is still on track for a solid Q3, but retail sales declined in September for the first time in seven months.
This Week's State Of The Economy - What Is Ahead? - 29 May 2020
Wells Fargo Economics & Financial Report / May 30, 2020
The beginning of this week saw some optimism that the economic downturn could be relatively short-lived, but data through the rest of the week provided grim reminder of the economic damage from COVID-19.
This Week's State Of The Economy - What Is Ahead? - 23 September 2020
Wells Fargo Economics & Financial Report / Sep 22, 2020
European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.
This Week's State Of The Economy - What Is Ahead? - 13 August 2021
Wells Fargo Economics & Financial Report / Aug 19, 2021
The general outlook remains positive as households have accumulated over $2T in excess savings on their balance sheets and net worth has risen across all income groups.
This Week's State Of The Economy-What Is Ahead?
Wells Fargo Economics & Financial Report / Aug 03, 2019
How will Fed rates-cut and Trump 10% tariff on $300 Billion Chinese Goods countered by Chinese currency devaluation against Dollar, affect inflation and economic slowdown in US economy?
This Week's State Of The Economy - What Is Ahead? - 04 June 2021
Wells Fargo Economics & Financial Report / Jun 08, 2021
The CDC\'s relaxation of its mask mandate occurred mid-May, and as data for that month begins rolling in this week, it is evident there is no lack of demand. Supplies, on the other hand, are a worsening problem.
This Week's State Of The Economy - What Is Ahead? - 10 November 2023
Wells Fargo Economics & Financial Report / Nov 16, 2023
Sometimes, the impact of higher rates is quite obvious, such as the series of bank failures that occurred earlier this year.
This Week's State Of The Economy - What Is Ahead? - 14 January 2022
Wells Fargo Economics & Financial Report / Jan 18, 2022
As you may have already seen, inflation is running almost as hot as the stock of our favorite bank. The Consumer Price Index (CPI) rose 7.0% year-over-year in December, the fastest increase in nearly 40 years.
This Week's State Of The Economy - What Is Ahead? - 31 January 2020
Wells Fargo Economics & Financial Report / Feb 01, 2020
Mexico’s economy has slowed notably over the last year, with the economy contracting again in Q4, indicating a full-year contraction for 2019.
