FOMC Minutes and July Retail Sales

With Congress in recess the only headlines from DC will likely come when the minutes from the latest FOMC meeting are released Wednesday afternoon. Recall that meeting didn’t change policy and while tapering was discussed there were no details released in the statement or the post-meeting press conference. The minutes, however, may shed some additional light on that subject in addition to any concern over the level and direction of inflation. Some Fed presidents have expressed a bit of increasing concern but it seems Fed leadership remains tethered to the transitory description of recent price increases and the July CPI report, while still showing moderate price gains, did see some slowing in categories like used cars that had been posting double-digit monthly gains of late. Away from the minutes,  the short list of economic releases will be headlined by July Retail Sales which are expected to show some softening versus the numbers posted in June. In short, it could be a quiet, trendless week with supply out of the way, Congress out of town, and the Fed stepping back prior to the Jackson Hole Symposium beginning on August 26th.

Much was made of the University of Michigan’s drop in consumer sentiment last Friday and the negative implications it may have for future consumer spending. While the drop was certainly noteworthy we’ve often said watch what consumers do and not what they say, but It does temper somewhat our belief that consumers were plowing ahead through the delta variant headwinds. The U. of Michigan reading tends to be more pessimistic versus the Conference Board’s confidence measure which has retained much of its optimistic bent in the last couple months.  That being said, determining the consumers willingness to spend in the weeks and months ahead will be key in shaping the fourth quarter growth outlook.


Treasury Curve Today Week Change
3 Month 0.05% Unchanged
6 Month 0.05% -0.01%
1 Year 0.07% Unchanged
2 Year 0.21% +0.0%
3 Year 0.42% +0.02%
5 Year 0.76% +0.01%
10 Year 1.27% -0.01%
30 Year 1.92% -0.01%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.24%
Swap Rates  
3 Year 0.523%
5 Year 0.849%
10 Year 1.274%


Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Aug 16 Empire Manufacturing Aug 29.0 18.3 actual 43.0
Aug 17 Retail Sales (MoM) Jul -0.2% -0.2% 0.6%
Aug 17 Retail Sales Ex-Auto & Gas (MoM) Jul 0.1% 0.0% 1.1%
Aug 17 Retail Sales Control Group (MoM) Jul -0.2% -0.2% 1.1%
Aug 17 Industrial Production Jul 0.5% 0.5% 0.4%
Aug 17 Manufacturing Prod. Jul 0.6% 0.6% -0.1%
Aug 18 Housing Starts (MoM) Jul -2.0% -2.6% 6.3%
Aug 18 Building Permits (MoM) Jul 1.0% 1.0% -5.3%
Aug 19 Leading Index Jul 0.8% 0.7% 0.5%


Top 5 Events for the Week

August 16—20, 2021

1.  July Retail Sales— Tuesday

Retail sales have been buffeted in recent months with the impact of stimulus checks being spent in grand amounts in March and then a notable slowdown in April and May. July is expected to show a spot of weakness after modest gains in June.  For the month, retail sales are expected to be decrease –0.2% versus a 0.6% increase in June. Sales ex-auto and gas are expected to be unchanged versus 1.1% in June. The retail sales control group—a direct feed into GDP—is expected to post a  -0.2% dip versus a 1.1% increase in June. So an inauspicious start is expected for retail sales in the third quarter, especially considering the numbers are not inflation-adjusted which makes the real results a bit weaker.

2.  July Industrial Production- Tuesday

Manufacturing and industrial production have held up well throughout the recovery period and that is expected to continue to be the case in July. For the month, industrial production is expected to increase 0.5% versus 0.4% in June.  Manufacturing production is expected to increase 0.6% versus a dip of –0.1% in June. Capacity utilization is expected to edge up to 75.7% versus 75.4% the prior month.

3. July Housing Starts and Permits—Wednesday

For July, starts are expected to decrease –2.6% to 1.600 million units annualized versus June’s 6.3% gain, or 1.643 million units annualized. Permits are expected to be up slightly from June increasing by 1.0% to 1.610 million annualized versus 1.594 million the prior month. After a soft patch in early 2021 housing starts and permits are generally expected to remain solid and that activity maintain as we move through the balance of summer as another dip in  mortgage rates and below-peak lumber prices boost additional sales.

Source: Bloomberg

4. July Leading Index—Thursday

The Leading Index-a gauge of nearly 80 variables that tend to move before the overall economy– plumbed new depths 15 months ago, as one would expect, but rebounded smartly in the summer of 2020 only to drift lower into year-end as virus case counts started spiking again.  But vaccines getting into more people, and case counts falling off has the index rebounding of late. Any reading below zero constitutes a soon-to-be contracting economy while above zero reflects an expanding economy. For July the index is expected to move up  0.7% matching the level in June. Thus, the Leading Index for  July is expected to reflect an economy continuing its growth trajectory with little signs yet of moderation to that growth profile.

5. Weekly Jobless Claims -Thursday

The weekly initial jobless claims series has been trending down for the last four weeks and expectations are for the claims series to slide again. This time expectations are for claims to total 365 thousand versus 375 thousand the prior week and that would be a new pandemic low. Continuing claims are expected to trend lower as well dipping to 2.800 million claims versus 2.866 million the prior week.  The 2.866 million claims was a new pandemic low which is expected to be bested with the latest continuing claims figure.  Thus, labor market healing continues but several million more left the labor force since the pandemic and have yet to return and that is something the Fed hopes will correct before lifting rates from the current zero lower bound.


Yield Universe

Source: SouthState Correspondent Trading Desk


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Published: 08/16/21 Author: Thomas R. Fitzgerald