Economic Update 07/18/16

Two SIGNS OF A STRONGER ECONOMY

Retail sales improved 0.6% in June, according to the Commerce Department, and the core gain was 0.7% with auto buying and home improvement purchases factored out. Industrial production rose 0.6% in June, making up for a 0.3% May loss. Both indicators could be taken as hints of solid second-quarter growth.

CORE INFLATION IS OUTPACING HEADLINE INFLATION

In the year ending in June, the headline Consumer Price Index increased just 1.0%. According to the Department of Labor, the average 12-month gain in the past decade is 1.7%. The yearly gain in the core CPI, however, was 2.3% in June; it has averaged 1.9% in the past 10 years. June also saw a 0.5% gain for the Producer Price Index.

SENTIMENT INDEX FALLS 4 POINTS

The drop in the University of Michigan’s monthly consumer sentiment index seemed to reflect anxiety over the Brexit vote; 24% of households with upper-tier incomes cited it in their survey responses. The preliminary July edition of the index came in at 89.5, down from the final June mark of 93.5. Economists polled by MarketWatch had anticipated a 92.5 reading.

MAJOR INDICES KEEP CLIMBING

Less than a month after the Brexit vote disrupted global markets, both the Dow and S&P 500 reached historic peaks. Across five trading days, the Dow rose 2.04% to a new record close of 18,516.55. The S&P 500 and Nasdaq, respectively, advanced 1.49% and 1.47% for the week to Friday settlements of 2,161.74 and 5,029.59. The S&P closed at four straight all-time highs Monday through Thursday.

THIS WEEK: Bank of America, Charles Schwab, Hasbro, IBM, J.B. Hunt, Netflix, and Yahoo! all present earnings Monday. Tuesday, investors will review June housing starts and building permits and earnings from Discover, Goldman Sachs, Johnson & Johnson, Lockheed Martin, Microsoft, Philip Morris International, Regions Financial, TD Ameritrade, United Continental Holdings, and UnitedHealth. Wednesday, earnings emerge from Abbott Labs, American Express, eBay, Halliburton, IMAX, Intel, Mattel, Morgan Stanley, Newmont Mining, Qualcomm, Raymond James, St. Jude Medical, and United Rentals. Thursday, Wall Street looks at June existing home sales plus earnings from Alaska Air, AT&T, BONY Mellon, Biogen, Boise Cascade, Chipotle, DISH Network, Domino’s, Dunkin’ Brands, E*TRADE, General Motors, PayPal, Quest Diagnostics, Sherwin-Williams, Skechers, Southwest Airlines, Starbucks, Travelers, Union Pacific, and VISA. American Airlines, GE, Honeywell International, and Whirlpool report earnings Friday.