MARKET VIEW WEEKLY

ECONOMIC REVIEW

• The Consumer Price Index (CPI) came in stronger than expected for the month of June, with prices increasing 0.9% month-over-month and 5.4% year-over-year.

• The Producer Price Index (PPI) came in better than expected for the month of June, with prices increasing 1.0% month-over-month and 7.3% year-over-year.

• Initial jobless claims came in at 360,000 for the week ending July 10th, missing economists’ expectations of 350,000 but still down from last week’s reading of 373,000.

• Retail sales grew more than expected in June, increasing 0.6% from a month prior.

• The University of Michigan Consumer Sentiment Index came in at 80.8, below economists’ expectations of 86.5.

INSIGHT: As inflation trends higher, investors continue to gauge how it will impact markets and the overall economy. According to the Federal Reserve (Fed) Chairman Jerome Powell, while higher than the Feds initial estimates, these levels of inflation are still temporary. As the economy re-opens, demand continues to outweigh supply, which is leading to shortages of goods and services and spikes in prices. Many of the shortages in goods and services are due to employers having a hard time filling open positions. Until more potential workers are vaccinated, schools fully reopen, and federal benefits expire, we could see this slog in the labor market persist which could ultimately slow down the economic recovery. Similarly, consumer sentiment fell to a 5-month low as the impacts of higher prices are clearly having an impact on lower and middle-income individuals. Consumers expect inflation to rise 4.8% over the next year, the highest since August 2008. Higher inflation seems to be driving down sentiment, but in the present, consumers continue to spend as we saw retail sales unexpectedly increase in the month of June.

Melissa MinterJuly 20, 2021

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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MARKET VIEW WEEKLY

Overview

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