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Look forward to June 10, 2019 week: Fed officials out of sight, data calendar focuses on inflation

A look forward to the June 10 week has a light data calendar composed of a series of reports that the FOMC will be paying close attention to in advance of the June 18-19 meeting. Fed policymakers will be largely out of the public eye and ear with the communications blackout period in effect from midnight on Saturday, June 8 through midnight on Thursday, June 20.

With the May Employment Situation out of the way, the only data report of note will be the numbers on Job Openings and Labor Turnover (JOLTS) for April at 10:00 ET on Monday. This report lags the employment report by one month. It is likely that the levels of job openings and new hires will remain high, that separations will remain few, and voluntary quits near recent peaks. In spite of some slower economic activity, businesses have yet to substantively cut back on adding to payrolls.

Initial jobless claims for the week ended June 8 are expected to remain in line with recent weeks and be somewhere in the 210,000-220,000 range. Layoff activity is expected to remain low in spite of softer growth.

The NFIB Small Business Optimism Index for May at 6:00 ET on Tuesday is anticipated to reflect continued solid conditions after the 1.7 point increase to 103.5 in April. If readings remain off the record highs seen in 2018, the level should remain consistent with good expansion. The NFIB’s jobs report released on June 6 indicated that at least for the components related to employment, there is not much changed with steady intentions to hire and the compensation paid, and job openings lingering just below record highs.

The preliminary reading for the University of Michigan Consumer Sentiment Index for June at 10:00 ET on Friday will give a better idea if the jump in consumer confidence in May can be sustained. I do not expect that to be the case. The most recent news about trade negotiations and heightened risks for the economic outlook are likely to depress the six-month expectations component which accounts for about 2/3 of confidence. Consumers should find plenty to like in the present situation with a strong labor market, and declining gasoline prices and mortgage interest rates.

Data on inflation should be of particular interest. The May Final Demand PPI is at 8:30 ET on Tuesday, the CPI at 8:30 ET on Wednesday, and the Import Price Index at 8:30 ET on Thursday. There may be some offsetting movements in the components. Prices for foods and beverage are likely to be higher, but energy costs down. Some imported goods and services will be more expensive due to tariffs. At the same time, a stronger dollar could mean the items themselves will be less costly. In any case, the PCE deflator for May will not be published until Friday, June 28 at 8:30 ET – after the FOMC meeting. Thus, the CPI is probably going to have to serve as the best available proxy at the June 18-19 deliberations. The April CPI was up 2.0% year-over-year and the core CPI was up 2.1%. If it stays roughly on track, making the argument that inflation is undershooting on a sustained basis will be harder to make.

It may also be a tough sell that inflation expectations are in danger of falling further. The University of Michigan Survey of Consumers inflation expectations for 1- and 5-years both rose noticeably in May. If sustained into June, the brief downturn to the low end of recent ranges will be over. The Atlanta Fed’s Business Inflation Expectations survey for May was at 2.0%, matching the Fed’s inflation target. While lower than seen in the second half of 2018, it is above the milder 1.9% in February through April. This will also diminish arguments that the FOMC needs to act soon to prevent inflation from persistently falling below target.

Retail and food sales for May at 8:30 ET on Friday is anticipated to bounce back from the disappointing down 0.2% in April from March. The main reason should be strong sales of motor vehicles, especially the pricier units in the light trucks category. Mild weather and good confidence should send consumers to stores for gardening supplies, building materials, and seasonal clothing and sports equipment. Declines in gasoline prices could make up some of the dollar value in increased volume as consumers travel more and in seasonal adjustment factors that anticipate the usual moderation in prices at the pump.

Industrial production and capacity utilization for May at 9:15 on Friday probably won’t see any big change as manufacturing remains sluggish, mining cautious, and utilities soft due to cooler than usual weather.

 

 

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