The week ended with each of the benchmark indexes losing ground. The small caps of the Russell 2000 fell the furthest, followed by the Global Dow, the Dow (which dropped for the fifth consecutive and is on track to moderately exceed that rate for some time), the S&P 500, and the Nasdaq. Among the sectors, financials and materials lost more than 6.0%, energy fell over 5.0%, and industrials dipped nearly 4.0%. The dollar and crude oil prices advanced, 10-year Treasury yields closed down 1.0 basis point, and gold prices ended a run of positive weekly gains, plunging 6.0%.
Last Week’s Economic News
- Following its meeting last week, the Federal Open Market Committee offered no definitive changes to its policy stance and view of the economy. However, the Committee’s projections anticipate two interest-rate hikes by the end of 2023. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The Committee acknowledged that inflation has risen, largely reflecting transitory factors. The Committee decided to keep the target range for the federal funds rate at 0.00%-0.25% and expects that it will maintain that target range until the labor market reaches maximum employment and inflation has risen to 2.0%. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.
- Prices at the producer level jumped 0.8% in May and are up 6.6% since May 2020, the largest 12-month increase since data was first calculated in November 2010.
- Retail sales dipped 1.3% in May but have risen 28.1% since May 2020.
- Industrial production increased 0.8% in May after inching up 0.1% the previous month, providing further evidence that the economy is picking up steam following pandemic-related restrictions. Manufacturing production advanced 0.9%, reflecting, in part, a large gain in motor vehicle assemblies.
- The number of residential building permits issued in May was 3.0% less than the April total.
- Import prices rose 1.1% in May following a 0.8% increase in April. Over the 12 months ended in May, prices for imports have risen 11.3%, the largest 12-month rise since a 12.7% increase for the 12 months ended in September 2011.
Eye on the Week Ahead
The final estimate of the first-quarter gross domestic product is out this week. So far, available data suggests GDP grew at an annualized rate of 6.4% in the first quarter. Also out this week are the May reports on new and existing home sales. Existing home sales fell 2.7% in April, while sales of new single-family homes declined 5.9%. May data on personal income and consumer prices is out at the end of the week. Personal income dipped 13.1% in April, although the personal consumption expenditures price index, an inflation indicator of particular relevance to the Federal Reserve, rose 0.6% in April and was up 3.6% since April 2020.
Have a nice week!
Sincerely,
Robert G. Carpenter