Federal Reserve Board Chair Jerome Powell added little to his recent Congressional testimony, so despite strong retail sales data, it appears the Fed will cut rates later this month.
In comments to the Bank of France in Paris on Tuesday, Powell repeated the Fed is closely watching downside risks and “will act as appropriate to sustain the expansion.”
Even Federal Reserve Bank of Dallas President Robert Kaplan told the Wall Street Journal he “could be convinced by arguments to cut rates based on signals coming from bond markets, even though he hadn’t penciled in any rate cuts this year at the central bank’s June policy meeting.”
Retail sales rose 0.4% in June, above expectations for a 0.2% gain, while gaining 0.4% excluding autos sales, also better than the 0.2% rise seen by economists polled by IFR Markets.
May headline data was revised down by the Commerce Department to a 0.4% gain, after the initially reported 0.5% rise. Sales excluding autos was also up 0.4% in May.
“Consumer spending clearly came roaring back in second quarter after a lackluster Q1 performance,” said Scott Anderson, chief economist at Bank of the West.
“Continued solid increases in control retail sales — which correlates most closely to the consumer spending component of GDP — is expected to propel real consumer spending growth in the second quarter to 4.0% plus at an annual rate.”
Meanwhile industrial production was flat in June, but the manufacturing number was up 0.4%, better than the 0.2% expected. Capacity utilization dipped to 77.9 in June from 78.1 in May. Economists expected the capacity use to remain at 78.1.
“The declines in industrial production and capacity utilization in the second quarter provide additional support to the Fed’s case for reducing interest rates later this month,” Anderson said.
The National Association of Home Builders/Wells Fargo Housing Market Index rose to 65 in July from 64 in June, while economists expected the number to hold at 64. With interest rates expected to fall, it should spur purchases despite other affordability issues, NAHB Chief Economist Robert Dietz said.
The Federal Reserve Bank of New York’s July Business Leaders Survey showed modest growth in the region’s service sector, with firms saying the business climate is above average.
The Labor Department said import prices declined 0.9% in June, the most since December, while export prices dropped 0.7% in the month. Economists expected import prices to fall 0.6% and export prices to slip 0.2%
Business inventories grew 0.3% in May, while sales were up 0.2%, according to Commerce data. Economists expected the 0.3% rise.
