Macro-Economic Mid-Year Update

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Last Week’s Headlines

By Michael Green [TGA Capital Management]

Businesses are paying more for goods and services as the Producer Price Index increased 0.5% in June, the largest increase in a year, according to the Labor Department. Higher energy costs pushed the increase. Since businesses usually pass on increases in the cost of goods and services, it’s likely consumer prices will increase as well, driving inflation upward.

Here is a mid year economic summary:

  • In fact, consumer prices did increase in June–just not at quite the same rate as producer prices. The Consumer Price Index rose 0.2%, following the same increase in May and a 0.4% gain in April. Over the last 12 months, the CPI has increased 1.0%. Excluding the volatile food and energy components, consumer prices still increased 0.2% in June and 2.3% from a year earlier.
  • Consumers continue to spend as retail sales increased in June, jumping 0.6% from the previous month and 2.7% ahead of last June. This follows a 0.2% (downwardly revised) increase in May. Excluding autos and gas, household spending climbed 0.7% from May. Output excluding autos remained the same as the prior month. This report, coupled with increases in consumer and producer prices, provides optimism for the economy over the summer months.
  • The manufacturing sector experienced a noticeable uptick in June, as industrial production increased 0.6% after falling 0.3% in May. Manufacturing output rose 0.4%, largely due to an increase in motor vehicle assemblies. June’s gain is the largest monthly increase since November 2014.
  • The number of job openings decreased by 345,000 to 5.5 million on the last business day of May, according to the Job Openings and Labor Turnover Survey (JOLTS) report from the Bureau of Labor Statistics. April’s rate was 5.8 million. May’s job openings rate is the lowest of the year. The quits rate was unchanged at 2.0% as workers continue to remain at their present jobs. It’s important to remember that June’s employment situation report showed significant improvement on the labor front.
  • U.S. import prices rose 0.2% in June from May, largely due to a spike in petroleum prices. Exports also increased in June, rising 0.8% following increases of 1.2% in May and 0.4% in April. The 2.4% rise in export prices for the second quarter of 2016 was the largest three-month advance in export prices since the index rose 2.7% between February and May 2011.
  • The Treasury Department reported a $6.3 billion budgetary surplus in June, following May’s $52.5 billion deficit. However, over the first nine months of the fiscal year, the deficit is up almost 27%, at $400.9 billion, over the same period last year ($316.4 billion).
  • Largely influenced by the immediate negative impact of the Brexit vote, the Index of Consumer Sentiment fell from 93.5 in June to 89.5 in July.
  • In the week ended July 9, the advance figure for seasonally adjusted initial unemployment insurance claims remained level at 254,000, unchanged from the prior week’s level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 2 was 2,149,000, an increase of 32,000 from the previous week’s revised level.


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