The latest inflation data show that higher prices outside of housing are not materializing, and lower energy costs are keeping inflation very low. Weak inflation bolsters the view that the Fed is likely to cut rates as early as their July 31 meeting.
Retail sales meet expectations: Retail sales increased 0.5% in May when analysts were expecting a 0.5% gain, but the prior two months of sales were revised up. Improving retail sales suggest that consumers are maintaining spending at a pace slightly better than previously thought. As a result of stronger retail sales and an increase in industrial production in May, the latest “nowcast” from the NY Fed has second quarter real GDP growth estimated at a weak 1.36%, but that’s much improved from 1.01% last week.
Consumer sentiment weakens: Contrasting with the stronger sales data in May was weaker consumer sentiment in June. The initial reading on Consumer Sentiment from the University of Michigan declined to 97.9 from 100 in May. Consumers are worried about tariffs, as the Conference Board reported that concerns about tariffs were made by 40% of those surveyed. The June surveys were collected from May 29 to June 12, which included the time that the threat to impose tariffs on imports from Mexico was in play.
Dealer sentiment stable, optimism down: We published data and insights from the second quarter Cox Automotive Dealer Sentiment Index last week. The current market index, which is the aggregate dealer view of current market conditions, rose one point to 49 in Q2 2019. The change from Q1 was not statistically significant. Customer traffic, likely reflecting normal seasonality, and the profit index both saw statistically significant improvements while the cost index saw a decline. Technically the readings in all three of these indices are still interpreted as negative (weak traffic, weak profits, growing costs), but the improvement meant they were less bad than before. Expectations for the next quarter fell but remained in positive territory at 55. Read more highlights about how dealers are feeling.
Looking ahead: This week we’ll get May new construction and existing home sales data, and we will hear the Fed’s rate decision following their June 19 meeting.