A look back at the July 8 week puts Chair Jerome Powell’s semiannual monetary policy testimony front and center. Markets desperately wanted a clear signal that the FOMC was prepared to cut rates at the upcoming July 30-31 deliberations. They got it along with the minutes of the June 18-19 meeting at confirmed that the consensus on the FOMC had taken a decidedly dovish turn and that the Committee was prepared to lower short-term rates in response to intensified uncertainties facing the economy even if the economic data remained overall positive. Stock markets responded with hitting record highs and President Trump’s supporters got to crow the Fed had fallen in line with the Administration’s wishes.
In spite of having tweeted that he intended to nominate Christopher Waller and Judy Shelton for open spots on the Board of Governors, President Trump has not officially sent a nomination to the Senate as yet. Admittedly the White House has had a busy week dealing with the fallout of its immigration policy and desire to get a citizenship question on the 2020 Census, and a huge scandal associated with now former Labor Secretary Alex Acosta. Waller’s pre-nomination has not met with any significant opposition among those who watch the Fed, but Shelton is taking a lot of heat for past opinions and inconsistencies. Her July 10 op-ed in The Washington Post was widely criticized and probably will not do much to soothe concerns about her qualifications for the Governor’s seat.
In any case, with the prospect of the Fed falling into line with Trump’s calls for a rate cut, the urgency of trying to get interest rate doves and/or loyalists to the President on the Board has faded. It may be that the White House will avoid making a hard nomination of either person until it is clear that one or both can survive the confirmation process without a contentious public display.
The week’s economic data did not change the outlook for a rate cut later in the month.
The data on Job Openings and Labor Turnover (JOLTS) for May was less strong than it had been. However, that was fully expected with softer payroll growth in the month and fresher data for June indicates that it will be a one-month blip in an otherwise near-record trend for new job openings, solid hiring, low levels of separations, and workers taking advantage of a vibrant labor market to change jobs and seek better wages and benefits.
Initial jobless claims for the week ended July 6 were down 13,000 to 209,000, the lowest since mid-April. Interestingly, the 50-year lows for claims in April were in part due to some mismatches in seasonal adjustment relative to the late timing of the Easter holiday. The July 6 week — and likely the July 13 one as well — are facing difficulties in seasonally adjusting at a time when activity among automakers is not lining up with the usual practice of closing factories early in July. Data could be noisy for the next few weeks and the four-week moving average should be a better read on conditions in the labor market. In the July 6 week, the average was at 219,250 which is consistent with recent behavior and low levels of layoffs overall.
The NFIB Small Business Optimism Index dipped to 103.3 in June from 105.0 in May, retracing the mild upward move in the prior month. The decline was much as expected and took into account concerns about the lack of a trade agreement with China. However, the index level remained one of solid confidence in the outlook. If the index is off the record levels seen in 2018, it cannot be characterized as weak by any measure.
The June Consumer Price Index and Final Demand Producer Price Index were both forecast to be softer on lower energy prices. This proved to be the case. The tale that both indexes have to tell is that commodities prices are barely registering any momentum higher while services are delivering most of the upward pressures.
The Atlanta Fed’s Business Inflation Expectations report for July showed that businesses are expecting inflation to be right on the Fed’s 2% objective. The Atlanta measure has been holding right at or just below 2% since the start of 2019. This suggests that businesses are in agreement with the FOMC that inflation should return to objective over the medium term. Certainly, the core readings of the CPI and PPI point in that direction. However, the PCE deflator for June will not be available until Tuesday, July 30 at 8:30 ET, just in time for the FOMC meeting.
Not on the calendar, but of interest was Boeing’s report on aircraft orders for June. The aircraft manufacturer announced a total of 9 new orders for the month. On the face of it, this was another month of skimpy bookings in spite of the Paris Air Show (June 17-23). However, at the expo, Boeing said it had signed a letter of intent with IAG for 200 new 737 MAX aircraft. It is not unusual for deals to take a little while to close and the actual orders to be place in the month subsequent to the air show. Boeing also has two more air shows to look forward to this year. The MAKS Airshow (August 27-September 1) and the Dubai Airshow (November 17-21). The MAKS event in Moskow isn’t usually a big source of orders whereas Dubai often has plentiful bookings. However, in both cases it is impossible not to speculate that political pressures may be a play to support the US company.
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