This morning brings a number of important releases on the U.S. economy, with the headline report coming from the Department of Commerce. At 8:30 A.M. (EDT), we learned that retail sales for the month of July increased 1.0%, which was up sharply from the revised June figure of -0.2%. When backing out the automobile component, retail sales rose a better-than-expected 0.4%, but that figure was down nominally from the revised June advance of 0.5%. In all, the retail sales figures do suggest that the consumer sector, which accounts for roughly two-thirds of the gross domestic product (GDP), remains resilient, and that is good news for the near-term health of the U.S. economy.
Meanwhile, the Labor Department reported that initial unemployment claims for the week ending August 10th totaled 227,000, which was down from the previous week’s revised tally of 234,000. Other reports of note this morning included a 4.7% contraction in the Empire State Manufacturing Survey and a 7.0% decrease in manufacturing activity in the greater Philadelphia area. At 9:15 A.M., we will get the latest industrial production and capacity utilization figures. This economic data did not change the narrative that the Federal Reserve will begin to cut the federal funds rate at its September Federal Open Market Committee (FOMC) meeting, but it did ease some of the growing economic concerns, at least in the near term. Treasury yields, which had fallen recently on those economic concerns, rose on the better-than-expected headline economic data points this morning. Equity futures, which were modestly higher heading into the data from the business beat, took another step up in a case of good news on the economy is good news for the equity market.
The week’s most important economic news came from the Labor Department, with the latest readings on both consumer and producer (wholesale) prices showing a continued moderation in inflation. Yesterday, we learned that the Consumer Price Index (CPI) rose just 2.9% on a 12-month basis, which was below the consensus forecast of 3.0% and the first sub-3% rate since 2021. Core CPI, the measure closely watched by policymakers that strips out volatile energy and food prices, rose 3.2% thus far this year (through July), compared to 3.3% through June.
The more-benign pace of price growth in July gives more fuel to the fire that the Federal Reserve will begin to reduce interest rates at the September FOMC meeting. Investors, though, should note that senior Fed officials will convene in Jackson Hole, Wyoming next week for its annual Economic Symposium. That event will include further monetary policy commentary from Fed Chairman Jerome Powell, which may well have an impact on trading late next week. After a notable selloff earlier this month on economic and geopolitical concerns, the equity markets have recovered a good portion of those losses on hopes that a Federal Reserve monetary policy pivot is imminent. The major equity averages delivered modest gains yesterday, helped by the aforementioned CPI data.
Meanwhile, second-quarter earnings season, which has been a supportive one for stocks with profit growth at the S&P 500 companies averaging around 10%, is nearing a conclusion. This morning, retail behemoth Walmart Inc. (WMT) reported its latest quarterly results, and the stock is trading higher in pre-market action and will give a boost to the Dow Jones Industrial Average when trading resumes. The company reported strong revenue growth of nearly 5%, while adjusted operating income advanced at a healthy (+7.2%) clip. The investment community also is cheering the retailer’s raised full-year profit forecast. Walmart is among the first major U.S. retail chains to report quarterly results that will provide some insight into how the U.S. consumer is feeling. Conversely, Alibaba (BABA), a China-based global online marketplace that connects buyers and sellers of products and services, disappointed investors with its latest financial results, and the stock is lower in extended hours trading. - William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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