Wealth Bytes: Economic data is mixed, but mostly weaker coming into the last full week of July

Wealth Bytes: Economic data is mixed, but mostly weaker coming into the last full week of July

July 24, 2023

Retail Sales are positive, but have slowed

Last Tuesday, we saw the release of Retail Sales information with the monthly growth rate of 0.19% and the annual growth rate at 1.49%. While the data is clearly positive, the growth rates have slowed with the year-over-year growth rate the lowest in last 12 months.

Industrial production numbers show overall decline

Next, the US industrial production numbers have declined both month-over-month and year-over-year. Production declined such that capacity utilization also fell. The decline in productivity is in agreement with the decline in ISM Manufacturing and shows ongoing weakness in the manufacturing side of the US economy.

Housing Starts are still slightly negative over last year

Housing Starts took a break from the strong reading last month and are a little higher than the beginning of the year. The average monthly growth rate over the last year is still slightly negative.

Existing home sales showed another decline in units, but an increase in median price as existing home owners who have lower mortgage rates than the prevailing rates (which are north of 7%) have a disincentive to sell. However, the median price continues to increase and the months of home supply are still tight by definition, but did increase slightly.

Mixed economic data continues to indicate an impending recession

The slowdown in growth on the services side combined with weakness in the manufacturing side, mixed results in housing, weakness in trade, and higher rates would generally indicate that we are headed towards a recession, in fact manufacturing is in a recession. It is only the services side of the economy that is maintaining growth.

The relative strength of the services side of the economy does push out the expectation of a recession into late 2023 or early 2024.

While a soft landing (low growth but not a recession) is possible, if inflation does not decline fast enough, then we might have a situation where the sense of “treading water” actually becomes a source of frustration for many workers.

In this last full week of July, we will get readings on GDP, inflation, new home sales, durable goods, and income. But perhaps the most watched piece of news will be the Federal Reserve meeting ending Wednesday, July 26. Markets are highly anticipating the Fed to raise rates another 25 bps, but the language of their news release will also be highly scrutinized.

Will the Fed continue to tighten? If so, when and by how much? Can they engineer a soft landing in which inflation falls and we still have economic growth? Is a 2% target really necessary, or can we live with a higher rate of inflation? These are the questions being asked by many market participants.

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