And finally, let’s recap today’s busy day of economic data. 📝
First, the European Central Bank (ECB) raised rates by another 25 bp to their highest level in 22 years. The Eurozone remains behind the curve on inflation, expecting headline inflation to fall to just 5.4% by the end of the year and reach 2.2% by the end of 2025. Like the Fed, it’s had a tough time forecasting inflation correctly. Regardless, it believes further tightening is needed to lower prices faster, given that economic growth is holding up better than expected. 📈
U.S. retail sales rose 0.3% in May and 0.4%, excluding automobiles and gasoline. Spending increased in ten of the thirteen categories, showing that consumers remain resilient, likely due to the tight labor market. 🛍️
Business inventories rose just 0.2% in April, with the inventory-to-sales ratio remaining at 1.40 months. In response to slowing demand, businesses continue to reduce production as they attempt to avoid excess inventories. 📦
Industrial production snapped a two-month winning streak in May, falling 0.2%. Manufacturing and motor vehicles saw slight increases, but a 1.8% decline in utilities and a 0.4% drop in mining weighed on the index. Capacity utilization also edged down ten bps to 79.6%. 🏭
The Philly Fed manufacturing index recorded its tenth consecutive negative reading at -13.7, though the six-month outlook rose into positive territory for the first time in four months. The New York Fed manufacturing index jumped into positive territory for the first time in six months, driven by a rise in new orders, shipments and increased optimism about future business conditions.
Initial weekly jobless claims were unchanged WoW at 262,000, with continuing claims rising by 20,000 to roughly 1.8 million. Overall, these numbers remain at historically low levels but continue to trend higher. Many analysts see this trend, a drop in job openings, and slowing wage growth as early indications of the labor market softening. 👨💼
And lastly, a tentative agreement is ending the labor dispute that’s crippled West Coast ports for the last two weeks. The six-year tentative agreement covers 22,000 workers and 29 West Coast ports. Though no details were released, it’s certainly a positive that they can begin to work on clearing the port congestion that’s developed. 🚢
Overall, the U.S. economy continues to hum along as inflation comes down. A strong labor market keeps money in people’s pockets, which is eventually spent in the economy. Ultimately the Fed wants to see jobless claims and other labor market indicators begin to trend higher and bring unemployment toward their forecast of 4.1% by the end of 2023. 🔺