Week of August 12 - 16, 2019

Maureen Kelliher, CFA

Maureen Kelliher, CFA

August 20, 2019

Weekly Economic Review

Weekly Macro Updates

Initial Jobless Claims (Aug 10) 212k est., 220k actual, 211k prior
Continuing Claims (Aug 3) 1685k est., 1726k actual, 1687k prior
Import Price Index YoY (Jul) -2.0% est., -1.8% actual, -2.0% prior
University of Michigan Consumer Sentiment Index (Jul P) 97.0 est., 92.1 actual, 98.4 prior
Empire Manufacturing (Aug) 2.0 est., 4.8 actual, 4.3 prior
Philadelphia Federal Reserve Business Outlook (Aug) 9.5 est., 16.8 actual, 21.8 prior
Nonfarm Productivity (2Q P) 1.4% est., 2.3% actual, 3.5% prior: R+
Unit Labor Costs (2Q P) 2.0% est., 2.4% actual, 5.5% prior: R+
Retail Sales Ex Auto & Gas MoM (Jul) 0.5% est., 0.9% actual, 0.6% prior: R-
Retail Sales Control Group (Jul) 0.4% est., 1.0% actual, 0.7% prior
Industrial Production MoM (Jul) 0.1% est., -0.2% actual, 0.2% prior: R+
Building Permits MoM(Jul) 3.1% est., 8.4% actual, -5.2% prior: R+
NHAB Housing Market Index (Aug) 65 est., 66 actual, 65 prior
Housing Start MoM (Jul) 0.2% est., -4.0 actual, -1.8% prior: R-

 Strong or Improving
 Inconclusive or lacking trend
 Weak or declining
R+ Revised up
R- Revised down

Directional change based on general
long-term tends.

Capital Market Implications 

There were several important economic releases last week and, in general, they painted a healthy picture of the US economy.  July retail sales were strong at up 1.0% month-over-month for the control group.  As consumption still accounts for two-thirds of US GDP, and of that, retail sales comprises 43% of consumption, July’s sales suggest third-quarter growth in the US got off to a solid start.  Additionally, given the recent drop in mortgage rates, several housing statistics demonstrated improvement in July.  Finally, on the industrial front, although industrial production contracted last month, two important regional Federal Reserve manufacturing surveys, Philadelphia and Empire, turned positive in August.  This could be a sign US manufacturing is turning a corner. 

Economic news may have been better last week but capital market news was not.  Intraday Wednesday, an important recession barometer – the slope of the yield curve – turned negative (inverted).  The inversion spooked investors and markets turned down on the day and for the week overall.  Thus, the S&P 500 Index lost -0.9% last week while the Dow Jones Industrial Average sank -1.4%.  The more defensive sectors such as staples, utilities and real estate increased but economically sensitive sectors including financials, discretionary and energy all declined more than -2.0%.  Similar to domestic markets, international markets lost ground last week, down over -1.0% on average.  Interest rates fell further throughout the week sending bond prices higher once again.  The Barclay’s aggregate bond index and corporate bonds climbed approximately 1.0% last week while municipals gained 0.5% and high yield bonds slipped. 

US Treasury Bond Yield Curve