Retail sales rose slightly in June, up 0.1%. Sales have slowed considerably in recent months, but still remain up a solid 8.1% over the last twelve month. Nonetheless, the slow advance in recent months does not bode well for overall growth in the second quarter.
The Producer Price Index also released this morning came in at -0.4% for June, providing the first month of easing price pressures in a year. The decline was most notable in crude goods, suggesting that lower prices are just starting to feed into the production cycle, but should filter through to finished goods in the months ahead.
In a data-heavy morning, weekly jobless claims came in at 405,000, down considerably from the prior week, likely in part due to the holiday-shortened week. As such, the decline may not be as meaningful as may appear to be the case at first glance.
The broad story remains unchanged: the economy remains soft and the jobs market remains challenged. While easing inflationary pressures are welcome and should relieve some stress for consumers, it’s the silver lining associated with the cloud of uncertainty that persists.
Many economists are looking for improvement in the second half of the year; the Fed’s recently revised expectations for 2011 growth suggest anticipated growth well above 3% in the latter half of the year. We remain skeptical about such an outcome given the stressed conditions for U.S. households and the many headwinds that remain. Not more than two weeks from the completion of QEII, the Fed suggested yesterday that additional easing may be needed in the future. While this may continue to support asset prices in the near term, the potential for greater risks may lie ahead if the economy is unable to achieve self-sustaining growth in the absence of continued stimulus.
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