Economy and Policy

Retail sales results for June were stronger than expected, consistent with a pickup in consumer spending growth in 2Q19 (although that follows a weak 1Q19). Industrial production was flat, but manufacturing output picked up a bit in June (still in an overall downtrend in 2019).

The Fed’s Beige Book (the anecdotal summary of economic conditions from around the country) noted that “economic activity continued to expand at a modest pace overall from mid-May through early July.” Businesses reported pressure from tariffs and rising labor costs, but “firms’ ability to pass on cost increases to final prices was restrained by brisk competition.”

Next week, earnings reports are expected to remain the dominant factor for equities. The government will release the advance estimate of 2Q19 GDP growth on Friday. Consumer spending growth should rebound, following a soft first quarter, but business fixed investment is expected to slow. Inventories and foreign trade are uncertain, but we ought to get some idea with the advance economic indicators report on Thursday. The GDP report will include benchmark revisions covering the last five years, but that is unlikely to alter the overall picture.