The stock exchange will be closed for the Juneteenth holiday on Wednesday.
After a week with two positive reports on inflation and a signal from the Federal Reserve that an interest rate cut is likely this year, the markets and economy will take something of a breather this week.
That will be aided by an actual break on Wednesday, as the New York Stock Exchange is closed for Juneteenth.
One key piece of economic data will be out Tuesday with the Census Bureau issuing the retail sales report for May. Expectations are for a bump from April, but lower gasoline sales – the result of falling prices – could skew the actual number.
A variety of recent reports have indicated the consumer may be close to tapped out, with credit card usage at record levels and facing the increasing headwind of high interest rates. That is why the Fed’s announcement last week that members of its monetary policy committee believe there will be one rate cut this year boosted hopes that inflation is on the wane. How soon that comes to pass could well determine when that happens.
“Retail sales likely rose moderately in May after no change in April,” Comerica Bank economists wrote on Monday. “Auto and parts sales rose on the month, while gasoline station sales fell on lower gas prices and a slow start to the summer driving season.”
Chip West, retail and consumer behavior expert at Vericast, an online marketing firm for the advertising industry, says that “there should be a likelihood for an uptick in May of about 0.2-0.3%.”
“Factors that may contribute to a return to spending growth include job gains and continued wage increases,” West said. “Although inflation remains stubborn, the consumer price index held steady in May, and with gas prices dropping, it would be reasonable to think consumers would be feeling more positive and better stretch their household budgets.”
Housing starts and building permits numbers are out Thursday while existing home sales data is released Friday. Analysts are looking for a small increase in the former and a slight drop in the latter.
Housing is being adversely affected by the Fed’s campaign against inflation as it has led to the benchmark 30-year fixed loan rate hovering around 7%. More inventory of existing homes coming onto the market and sales of new homes have not really had much effect on home prices, so the market has cooled as both sellers and buyers await lower rates.
However, late last week the yield on the 10-year Treasury fell to 4.2%, the lowest it has been in several weeks, after the benign inflation data came out. The 10-year Treasury is a key barometer for consumer interest rates so if the trend holds, mortgage and other loan costs could begin to improve.
“We look for GDP (gross domestic product) growth to moderate in the second half of the year as consumers and businesses pull back on purchases and capital spending ahead of the November election,” said Sam Bullard, managing director and senior economist at Wells Fargo’s corporate and investing group. “The labor market should continue to move further into balance and slower economic growth should help tame inflation. We have reaffirmed our expectations for the first rate cut to occur at the September (Fed) meeting, though that call is dependent on continued encouraging inflation performances.”