Economics Weekly July 22, 2024
Fed study points to a slowdown for the economy
The Federal Reserve released its latest ‘Beige Book’ last week, which pointed to a slight cooling of the U.S. economy in recent weeks. The Beige Book is a survey conducted by each of the twelve Fed districts of their contacts in the business world, the results of which are assigned a score to indicate whether the economy in that region is growing, contracting or at a standstill. Seven of the twelve districts reported modest growth, while two (Cleveland and Minneapolis) experienced a slight contraction. Three regions (Atlanta, New York and San Francisco) experienced no change. In the previous survey, which was conducted six weeks ago, ten districts reported growth, two saw no change, with none calling a contraction. Clearly there has been a slowdown of the economy lately, although that strengthens the case for cutting the Fed Funds Rate; which the financial markets are pricing in for September. If this happens, it will be welcoming news in the capital markets environment.
Retail sales saw no growth in June on a monthly comparison, which was better than expected as Wall Street was forecasting a decline of -0.2%. Sales were down for gas and autos, but most other categories saw some growth, and online shopping was particularly strong. The momentum for ecommerce may have continued into July, given Amazon held its Prime Day sale last week. Additionally, the decrease in auto sales related to a cyberattack on dealerships; so, the fall in sales could potentially be reversed in the July figures. This is a timely reminder that last Friday’s global IT outage will have economic repercussions. The numbers for retail sales for April and May were revised higher, so this data release, while subdued at the headline level, did contain some encouraging news.
This week sees figures released on growth and inflation. The GDP numbers for Q2 are expected to show some recovery after the slowdown seen in Q1, although we are not anticipating a strong rebound. On Friday, PCE Price Index inflation data for June will be published. We are forecasting inflation to slow.
Things to watch for this week
Wednesday, July 24th
Composite (Flash) PMI Index, July
Previous: 54.8
Forecast: 54.6
The convention of this business activity index is that a reading over 50 indicates a growing economy. We are forecasting a step back from June’s strong reading of 54.8, but nevertheless we still expect to a see a number well above the 50 mark.
Thursday, July 25th
GDP Growth, q-o-q annualized, Q2
Previous: 1.4%
Forecast: 1.9%
Falling inflation between April and June in our opinion will have helped increase spending power for businesses and consumers, leading us to predict an improvement for GDP growth for Q2.
Friday, July 26th
PCE Price Index Inflation, June
Previous: 2.6%
Forecast: 2.5%
In part thanks to lower gas prices, but also due to a wider easing of price growth across many products, we are predicting a further deceleration for PCE index inflation.