Weekly Economic Update: August 1, 2022

Positive economic news and corporate earnings data helped drive stocks higher last week. Although the Federal Reserve hiked interest rates another 75 basis points, investors may expect subsequent rate increases to be no more than 75 basis points, with the possibility of a slowdown in rate hikes in the not-too-distant future. All the major stock benchmark indexes gained at least 2.9%, with the Nasdaq, the S&P 500, and the Russell 2000 climbing more than 4.0%. Ten-year Treasury yields fell for the third consecutive week. Crude oil prices increased for the first time in four weeks. Gold prices jumped nearly $57.00 per ounce, while the dollar dipped lower.

Last Week’s Economic News

• As expected last Wednesday, the Federal Open Market Committee raised the target range for the federal funds rate 75.0 basis points to 2.25%-2.50%. The Committee anticipates ongoing increases in the target range , while continuing to reduce its holdings, until reaching the Committee’s objective of 2.0% inflation. In support of its decision, the FOMC noted that “indicators of spending and production have softened” but the employment sector remains strong. Nevertheless, inflation remains elevated due to supply and demand imbalances related to the pandemic, higher food and energy prices, and the ongoing Russia/Ukraine war.
• Gross domestic product decreased at an annual rate of 0.9% in the second quarter, according to the initial, or “advance,” estimate from the Bureau of Economic Analysis. GDP decelerated at a rate of 1.6% in the first quarter. The second-quarter decline reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential (business) fixed investment that were partly offset by increases in exports and personal consumption expenditures. Imports, which are a subtraction in the calculation of GDP, increased. The decrease in private inventory investment was led by a downturn in retail trade, most notably merchandise stores and motor vehicle dealers. Residential fixed investment dropped 14.0% in the second quarter. The personal consumption expenditures price index, an indicator of inflation, increased 7.1% in the second quarter, matching the increase in the first quarter. Consumer spending, as measured by personal consumption expenditures, increased 1.0% in the second quarter following a 1.8% increase in the first quarter.

• Consumer prices rose 1.0% in June, according to the latest Personal Income and Outlays report from the Bureau of Economic Analysis. Excluding food and energy, prices advanced 0.6%. On an annual basis, prices rose 6.8% for the 12 months ended in June, up from 6.3% for the 12 months ended in May. Consumer spending also increased in June, rising 1.1%. Spending on goods rose 1.6%, while consumer spending on services advanced 0.8%. Personal income advanced 0.6% in June, while disposable (after-tax) personal income increased 0.7%. Wages and salaries rose 0.4% in June, and rental income increased 2.5%.

• The housing market continues to retreat. Sales of new single-family homes dipped 8.1% in June and are 17.4% below the June 2021 pace. The median sales price of new houses sold in June was $402,400. The average sales price was $456,800. Inventory of new single-family homes for sale in June represented a supply of 9.3 months, higher than the 8.4-month supply in May. The June supply is the highest since May 2010.

• The international trade in goods deficit shrunk in June, falling $5.9 billion from the May figure. Exports of goods for June were $4.4 billion more than May exports. Imports of goods were $1.5 billion less than May imports. The June 2022 deficit was $7.6 billion above the June 2021 trade deficit.

• New orders for durable goods rose 1.9% in June over the previous month. Excluding transportation, new orders increased 0.3%. Excluding defense, new orders increased 0.4%. Transportation equipment, up for three consecutive months, led the increase, advancing 5.1%. New orders for nondefense capital goods in June increased 0.1%. New orders for defense capital goods slid 2.7%. Several categories saw a decrease in new orders, including nondefense aircraft and parts (-2.1%), communications equipment (-2.3%), and primary metals (-1.1%). Areas of growth included computers and related products (+5.9%), electrical equipment, appliances, and components (+2.5%), transportation equipment (+5.1%), and motor vehicles and parts (+1.5%). New orders for defense aircraft and parts vaulted 80.6% higher in June.

• The national average retail price for regular gasoline was $4.330 per gallon on July 25, $0.160 per gallon below the prior week’s price but $1.194 higher than a year ago. Also as of July 25, the East Coast price decreased $0.139 to $4.206 per gallon; the Gulf Coast price fell $0.169 to $3.831 per gallon; the Midwest price dropped $0.201 to $4.227 per gallon; the West Coast price slid $0.128 to $5.266 per gallon; and the Rocky Mountain price fell $0.194 to $4.656 per gallon. Residential heating oil prices averaged $3.456 per gallon on July 22, about $0.243 per gallon less than the prior week’s price. According to the U.S. Energy Information Administration report of July 27, prices for propane have steadily declined since reaching a peak in March. Propane prices, which are correlated to crude oil prices, have fallen 32.0% to $1.11 per gallon, down from $1.64 per gallon on March 11.

• For the week ended July 23, there were 256,000 new claims for unemployment insurance, a decrease of 5,000 from the previous week’s level, which was revised up by 10,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended July 16 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended July 16 was 1,359,000, a decrease of 25,000 from the previous week’s unrevised level. States and territories with the highest insured unemployment rates for the week ended July 9 were Puerto Rico (2.1%), New Jersey (2.1%), California (1.9%), Rhode Island (1.9%), New York (1.6%), Pennsylvania (1.6%), Connecticut (1.5%), Massachusetts (1.4%), Alaska (1.3%), and the Virgin Islands (1.3%). The largest increases in initial claims for the week ended July 16 were in Massachusetts (+14,142), Connecticut (+6,000), Georgia (+3,166), South Carolina (+3,149), and California (+2,681), while the largest decreases were in New York (-3,633), Ohio (-3.633), Kentucky (-1,907), New Jersey (-1,872), and Indiana (-1,865).
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Eye on the Week Ahead

Robert G. Carpenter