Both the demand and producer side of the economy showed strong performance. Retail sales and industrial production exceeded market predictions. Meanwhile, layoffs remained in safe territory.
Retail sales for June outpaced market expectations, with sales for the month growing 0.6 percent to hit $457.0 billion, instead of the 0.3 percent the market had expected, according to the Census Bureau’s report from last week. Compared to last year, June’s sales were 2.6 percent higher than June 2015’s total receipts.
Major drivers for June’s increase were sales at building material and garden supply retailers, which enjoyed a 3.9 percent increase; gas stations, which saw a 1.2 percent gain; non-store retailers (retailers who sell outside a traditional retail establishment), which saw their sales go up 1.1 percent; and sporting goods, hobby, book and music stores, which grew 0.8 percent. In fact, the only two retail segments that saw any sales contraction were clothing and accessories stores, which were down 1 percent, and food service and drinking establishments, which were off by 0.3 percent.
Given that consumer spending drives 70 percent of the U.S. economy, the sales growth was a welcome sign that the retail sector of the economy was rebounding after seeing a so-so spring.“Consumers continue to push the U.S. economy forward,” Gus Faucher, deputy chief economist for PNC Financial Services Group, wrote in an update.
Retail sales weren’t the only segment of the economy to outpace market expectations. Industrial production – the monthly measure output by U.S. factories, mines, and utilities – also grew 0.6 percent for the month of June, compared to 0.2 percent anticipated by the market, the Federal Reserve reported last week. This was the fastest rate of growth in industrial production in 11 months.
In detail, manufacturing output grew 0.4 percent in June, mainly thanks to an increase in motor vehicle production. The output of other manufactured goods was unchanged. Utilities increased 2.4 percent thanks to warmer weather spurring increased use of air conditioning. Mining notched up 0.2 percent for the second month in a row following eight consecutive months of decline.
Despite the good news, many economists warned that this was not the time to get over-optimistic because while the increases were welcome, they were due to fluctuations that were benefitting only specific elements of industrial production. The challenges that caused mediocre performance in previous months still remain.
“The bulk of manufacturing faces the same problems today that it faced a year ago — too much inventory in the system at home and too strong of a dollar to not face significant drag from higher import shares and lower export shares in the world market,” Michael Montgomery, U.S. economist at IHS Global Insight, wrote in a statement to clients.
Initial Jobless Claims
Turning to jobs, the total number of first-time claims for unemployment benefits filed during the week ending July 9 by the recently laid off were unchanged from the previous week, according to last week’s report from the Employment and Training Administration. Initial claims for the week ending July 9 hovered at 254,000, which was the same as the previous week’s total. The four-week moving average — considered a more stable measure of layoff activity — notched down to 259,000, a decline of 5,750 claims from the prior week’s average of 264,750.
All told, this was the 71st straight week of claims below the 300,000-claim mark, which economists consider a sign of a growing job market. This has been the longest such streak since 1973.
This week we can expect:
- Tuesday — Wholesale inventories for May from the Census Bureau and the Bureau of Economic Analysis.
- Thursday — Initial jobless claims for last week from the Employment and Training Administration; June producer price index from the Bureau of Labor Statistics.
Written by Summit Mortgage Corporation located in Lakewood, Colorado.