Economics Weekly July 15, 2024
Speculation builds on a September rate cut
Expectations rose last week that the first cut for the Fed Funds Rate will fall in September, following better-than-expected inflation figures. CPI inflation fell from 3.3% in May to 3.0% in June, which was ahead of Wall Street’s forecast of a drop to 3.1%. Core CPI inflation, which excludes volatile items like food and fuel, declined from 3.4% in May to 3.3% in June, defying forecasts of no change. Also, Fed Chair Powell testified before Congress and his comments were interpreted by the financial markets as leaning towards a cut soon. In particular, Powell said that the Fed would not wait until inflation reached 2.0% before cutting. A September reduction would occur during the intense campaigning period of the general election, and thus risks being politicized. However, the fact that the European Central Bank, Bank of Canada and Swiss National Bank have already cut their rates may help Fed officials when pushing back on any criticism.
Figures released last week showed that total U.S. vehicle sales fell from 15.9 million on an annualized basis in May to 15.3 million in June, according to the National Automobile Dealers Association. This was a disappointment as Wall Street was forecasting 15.8 million, and it is the second lowest figure in the last 12 months. This was partly due to a cyber attack that hit software used by many dealerships, and it is presumed sales will recover in July. However, this is a reminder of how essential to the economy cyber security has become and will likely prompt other industries to increase their defences. This could lead to further office expansion by tech sector firms.
This week sees the release of retail sales figures. The annual rate of growth has declined for the last two months and we are expecting that trend to continue due to high interest rates. On Wednesday, preliminary data will be published on building permits that we believe will confirm interest in developing new real estate will remain subdued.
Things to watch for this week
Tuesday, July 16th
Retail Sales, y-o-y, June
Previous: 2.3%
Forecast: 2.1%
With high interest rates slowing the economy and limiting consumer spending power, we are expecting another deceleration for retail sales growth.
Wednesday, July 17th
Building Permits (Preliminary), June
Previous: 1.4m
Forecast: 1.4m
Building permits in May hit their lowest level since 2020, and given the dampening effect high interest rates are having on the real estate market, we are expecting little change in June.