Market gains achieved earlier in the week were given back by last Friday as investors appeared to react to China’s retaliatory tariffs on American exports. The deteriorating relationship between the United States and China escalated last week after plans were discussed for the United States to impose tariffs of 25% on a significant number of Chinese imports. In response, China targeted U.S. exports, including cars and crude oil, for similar tariffs. By the end of the week, the Dow fell the most among the major indexes, suffering through its largest one-week loss since March. Other than the Global Dow, the remaining major indexes (Nasdaq and Russell 2000) actually posted gains, while the S&P 500 was unchanged.
The price of crude oil (WTI) and the price of gold (COMEX) fell from the prior.
LAST WEEK’S ECONOMIC HEADLINES
- The Federal Open Market Committee decided to raise the target range for the federal funds rate 25 basis points to 1.75%-2.00%. The Committee noted that the labor market has continued to strengthen, and that economic activity has been rising at a solid rate. Growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%. The FOMC appears to be targeting two more rate hikes before the end of the year.
- Consumer prices continued to climb at a slow pace in May, much like it did in April. Over the last 12 months, the Consumer Price Index has risen 2.8%.
- The prices producers receive for goods and services at the wholesale level rose in May after climbing a bit the prior month.
- Retail sales jumped 0.8% in May from the previous month, and 5.9% above May 2017.
- The federal government showed a $146.8 billion deficit in May following a $214.3 billion surplus in April. For comparison, the May 2017 deficit was $88.4 billion. For fiscal 2018, the total government deficit is $532.2 billion. Over the same eight months in 2017, the deficit was $432.9 billion — a difference of about 23%. Of note, for the current fiscal year to date (October through May), individual income taxes are up $94.5 million compared to 2017, while corporate income taxes are down $42.2 million. Compared to fiscal 2017, total government receipts for fiscal 2018 are up 2.6%, while expenditures have increased by 5.9%.
- Industrial production edged down 0.1% in May after rising 0.9% in April. Manufacturing production fell 0.7% in May. Excluding motor vehicles and parts, factory output moved down 0.2% for the month. Over the past 12 months, industrial production is up 3.5%.
- Prices for U.S. imports increased 0.6% for the second consecutive month in May, as rising fuel and nonfuel prices contributed to the advances in both months. Import prices have risen 4.3% for the 12 months ended in May 2018 — largely driven by higher fuel prices. Excluding fuel, import prices are up 0.2% for the month and 1.9% for the year. U.S. export prices rose 0.6% for the second consecutive month in May, and are up 4.9% for the year.
EYE ON THE WEEK AHEAD
Performance statistics from the housing sector for May are released this week and next. Housing starts, new building permits, and existing home sales each dropped off in April. Reports this week hope to show a reversal of that trend for May. Next week, figures on new home sales are released for May following April’s lackluster returns.