Evelyn Reynolds

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    Retail sales increased 0.7% in July, better than expected as consumer spending is holding up

    The advanced retail sales report showed a seasonally adjusted increase of 0.7% for the month, while spending increased 1% excluding autos. Both were better than the 0.4% estimates.
    July’s numbers were boosted by a 1.9% jump in spending at online retailers, while sporting goods and related stores increased 1.5% and food service and drinking places rose 1.4%.
    A separate report showed that import prices moved 0.4% higher in July, more than the 0.2% estimate. However, virtually the entire increase was driven by fuel prices.
    The Empire State Manufacturing Survey slumped 20 points in August to a reading of -19, though the index for future conditions posted a sharp gain.

    Shoppers at Brickell City Centre in Miami, Florida, US, on Wednesday, June 14, 2023. 
    Eva Marie Uzcategui | Bloomberg | Getty Images

    Consumer spending held up well in July as inflation slowed, with retail sales turning in a stronger than expected showing for the month, the Commerce Department reported Tuesday.
    The advanced retail sales report showed a seasonally adjusted increase of 0.7% for the month, better than the 0.4% Dow Jones estimate. Excluding autos, sales rose a robust 1%, also against a 0.4% forecast. Both readings were the best monthly gains since January.

    As the numbers are not adjusted for inflation, they showed a consumer able to keep ahead of price increases that have been prevalent over the past two years. The consumer price index rose 0.2% on the month, indicating solid demand.
    July’s numbers were boosted by a 1.9% jump in spending at online retailers, while sporting goods and related stores increased 1.5% and food service and drinking places rose 1.4%.
    On the downside, furniture sales slumped 1.8% and electronics and appliance stores reported a 1.3% drop. Gas station sales rose just 0.4% on the month despite rising prices at the pump.
    The report adds to the narrative that the U.S. economy may be able to avoid a much-predicted recession brought on by a series of Federal Reserve interest rate hikes aimed at controlling inflation.
    In a series of 11 increases since March 2022, the central bank has taken up its key borrowing rate by 5.25 percentage points to hits highest level in more than 22 years. Regardless, consumers, who power about two-thirds of the entire $26.8 trillion U.S. economy, have persevered.

    As saving has begun to dry up, shoppers have shown a willingness to use credit cards, the balances of which exceeded $1 trillion for the first time in the second quarter of 2023.
    July’s data showed that spending was widespread, with most categories showing increases. However, motor vehicle sales fell 0.3% as well. On a 12-month basis, sales rose 3.2%, which is exactly in line with the annual increase in the CPI.
    A separate report Tuesday, however, showed that inflation pressures linger after hitting their highest level in more than 40 years in the summer of 2022.
    Import prices move 0.4% higher in July, higher than the 0.2% estimate, according to the Bureau of Labor Statistics. That was only the second monthly gain in 2023, as the year-over-year rate declined 4.4%. A year ago, the annual increase was 8.8%.
    Virtually all of the increase came from a 3.6% rise in imported fuel prices. Import prices were unchanged when excluding fuel, according to the BLS.
    Export prices, though, rose even more, gaining 0.7% on the month. However, they are down 7.9% from a year ago, after surging 12.9% from July 2021 to July 2022.
    An additional report Tuesday presented another mixed bag of data.
    The Empire State Manufacturing Survey, which gauges activity in the New York region, slumped 20 points in August to a reading of -19. That represents the difference between companies reporting expansion against contraction, and was much lower than the -1.4 Dow Jones estimate.
    New orders and shipments dropped sharply on the month, while prices paid and received both moved considerably higher.
    Despite the poor August reading, the index for future business conditions, which measures expectations six months out, increased to 19.9, a move up of 6 points. That came as new orders and shipments, the big drag in the current conditions survey, to “increase significantly,” while employment is “expected to grow considerably.”
    Capital spending expectations also rose sharply. More

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    Russian ruble slumps to near 17-month low, moves past 100 against the dollar

    The Russian ruble slid past 100 to the U.S. dollar on Monday, nearing a 17-month low as President Vladimir Putin’s economic advisor blamed loose monetary policy for the rapid depreciation.
    The ruble has lost around 30% against the greenback since the turn of the year.
    The Bank of Russia has blamed the country’s shrinking balance of trade, as Russia’s current account surplus fell 85% year on year from January to July.

    This pool image distributed by Sputnik agency shows Russian President Vladimir Putin meeting with the Tver region governor at the Kremlin in Moscow on August 9, 2023.
    Mikhail Klimentyev | AFP | Getty Images

    The Russian ruble slid past 100 to the U.S. dollar on Monday, nearing a 17-month low as President Vladimir Putin’s economic advisor blamed loose monetary policy for the rapid depreciation.
    The ruble has lost around 30% against the greenback since the turn of the year. The Bank of Russia has blamed the country’s shrinking balance of trade, as Russia’s current account surplus fell 85% year on year from January to July.

    By mid-afternoon in London, the ruble was trading just above 101 to the dollar.
    Putin’s economic advisor, Maxim Oreshkin, told Russia’s state-owned Tass news agency that the depreciation of the currency and acceleration of inflation was mainly due to “loose monetary policy” and that the central bank has “all the necessary tools to normalize the situation in the near future.”
    “A weak ruble complicates the restructuring of the economy and negatively affects the real incomes of the population. In the interests of the Russian economy — a strong ruble,” he said, according to a Google translation.
    The central bank on Thursday halted foreign currency purchases for the rest of the year in a bid to shore up the currency, which is fueling fears of rising inflation as Russia attempts to fundamentally transform its economy in the face of increasing isolation and punitive Western sanctions.
    Russian GDP exceeded expectations to grow by 4.9% year on year in the second quarter, new figures from the Federal State Statistics Service showed Friday, rebounding from a 1.8% contraction in the first quarter.

    But William Jackson, chief emerging markets economist at Capital Economics, noted that limited slack in the economy is likely to further fuel inflation pressures and result in monetary policy tightening, potentially weakening growth over the remainder of the year and into 2024.
    “Perhaps the key risk to the economy is if the government keeps fiscal policy loose to support the war effort, which would cause Russia’s economic vulnerabilities to worsen further,” Jackson added. More

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    Biden Describes China as a Time Bomb Over Economic Problems

    The sharply worded comments are the latest example of the president’s willingness to criticize China even as he tries to ease tensions.President Biden warned on Thursday that China’s struggles with high unemployment and an aging work force make the country a “ticking time bomb” at the heart of the world economy and a potential threat to other nations.“When bad folks have problems, they do bad things,” the president told a group of donors at a fund-raiser in Park City, Utah.Mr. Biden’s comments are the latest example of the president’s willingness to criticize China — often during fund-raising events with contributors to his presidential campaign — even as his administration seeks to ease tensions between the world’s two largest economies.Earlier this summer, at a fund-raiser in California, Mr. Biden called President Xi Jinping of China a “dictator” who had been kept in the dark by his own officials about the spy balloon that flew over much of the United States from late January to early February before being shot down by the U.S. military.On Thursday night, Mr. Biden said he was trying to make sure the United States has a “rational relationship with China,” but he signaled that he continues to view Beijing as America’s biggest economic competitor.“I don’t want to hurt China, but I’m watching,” Mr. Biden said in Utah.The remarks underscore the complicated diplomacy that the president and his administration are engaged in as they attempt to ease tensions with China while limiting the economic and military threats posed by the country and its Communist leadership.Relations between the two countries grew icy after the spy balloon incident and the more recent discovery that China has been inserting malicious computer code deep inside the networks controlling power grids, communications systems and water supplies around U.S. military bases.Mr. Biden has said he seeks “competition, not conflict” with China, taking steps to minimize the possibility of direct military clashes with Beijing over the South China Sea and the future of Taiwan.Top American officials have visited in recent weeks with their counterparts in China. Gina Raimondo, the commerce secretary, is expected to go there in coming weeks.But the president has moved aggressively to contain China’s rise and to restrict its ability to benefit militarily from the use of technologies developed in the United States.Mr. Biden signed an executive order this week banning American investment in some Chinese technology industries that could be used to enhance Beijing’s military capabilities. In response, the Chinese government hinted that it would retaliate and accused the United States of trying to “politicize and weaponize trade.”The president’s comments on Thursday could complicate efforts by both countries to schedule a face-to-face meeting between the two leaders in the coming months. Mr. Biden and Mr. Xi have not met in person since last November, during the Group of 20 summit of world leaders in Indonesia.The White House has not said whether the two men will have an in-person meeting at the Asia-Pacific Economic Cooperation summit, which is scheduled for later this year in San Francisco. Mr. Xi is expected to attend. More

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    Wholesale prices rose 0.3% in July, higher than expected

    The producer price index rose 0.3% for the month, slightly higher than the 0.2% estimate.
    On a year-over-year basis, headline PPI was up just 0.8%. Prices excluding food, energy and trader moved up by 2.7%.

    A measure of wholesale prices rose more than expected in July, countering recent trends showing that inflation pressures are easing.
    The producer price index, which gauges the costs that goods and services producers receive for their products as opposed to those that consumers pay, rose 0.3% for the month, the Bureau of Labor Statistics reported Friday.

    Excluding food and energy, core PPI also increased 0.3%.
    Economists surveyed by Dow Jones had been expecting an increase of 0.2% for both readings. Excluding food, energy and trade services, PPI increased 0.2%.
    On a year-over-year basis, headline PPI was up just 0.8%. Prices excluding food, energy and trade services moved up by 2.7%.
    Markets moved lower following the report, with futures tied to the Dow Jones Industrial Average down about 70 points. Treasury yields advanced, with the benchmark 10-year note last at 4.137%, up about 0.06 percentage points on the session.
    Services costs pushed the index higher, rising 0.5% for the month, the largest gain since August 2022. Much of that came from a 7.6% surge in prices for portfolio management. In addition, there was a 0.7% jump in prices for trade services, along with a 0.5% increase in transportation and warehousing.

    Goods prices rose just 0.1%, though food prices increased 0.5% while prices excluding food and energy were unchanged. Within the food category, meats surged 5%. Energy was a mixed bag: Costs for many gas fuels increased, but diesel declined by 7.1%.
    The PPI release comes a day after the BLS reported that the more widely followed consumer price index also rose 0.2% for the month, both on the headline and core readings.
    However, the 3.2% 12-month rate of change in the CPI was slightly less than economists had anticipated, bolstering the case for easing inflation.
    Federal Reserve officials watch both measures closely. While the CPI often gets more attention, the wholesale price measure is seen as more of a leading indicator as it looks at pipeline costs for various products and services.
    Policymakers have been debating how much further they need to push interest rates, following 11 increases totaling 5.25 percentage points since March 2022. In recent days, some officials have indicated the rate hikes could be at an end as inflation drifts back to the Fed’s 2% long-run goal.
    Markets have assigned a near-certainty to the Fed skipping a rate hike at its September meeting. More

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    Inflation Rose to 3.2%, but Overall Price Trends Are Encouraging

    Economists looked past the first acceleration in overall inflation in more than a year and saw signs that price pressures continued to moderate in July.Fresh inflation data offered the latest evidence that price increases were meaningfully cooling, good news for consumers and policymakers alike more than a year into the Federal Reserve’s campaign to slow the economy and wrestle cost increases back under control.The Consumer Price Index climbed 3.2 percent in July from a year earlier, according to a report released on Thursday. That was the first acceleration in 13 months, and followed a 3 percent reading in June.But that tick up requires context. Inflation was rapid in June last year and slightly slower the next month. That means that when this year’s numbers were measured against 2022 readings, June looked lower and July appeared higher than if the year-earlier figures had been more stable.Economists were more keenly focused on another figure: the “core” inflation index, which strips out volatile food and fuel prices. That picked up by 4.7 percent from last July, down from 4.8 percent in June. And on a monthly basis, core inflation roughly matched an encouragingly low pace from the previous month.The upshot was that inflation continued to show signs of seriously receding after two years of rapid price increases that have bedeviled policymakers and burdened shoppers — and the details of the July report offered positive hints for the future. Rent prices have been moderating, a trend that is expected to persist in coming months and that should help to weigh down inflation overall. An index that tracks services prices outside of housing is picking up only slowly.“This is continuing the kind of progress I think that you want to see,” said Omair Sharif, the founder of Inflation Insights, a research firm. Airfares fell sharply, and hotel costs eased last month. Big drops in those categories may be difficult to sustain but are helping to limit price increases for now.Used cars were also cheaper last month, a trend that some economists expect to intensify in the months ahead, based on declines that have already materialized in the wholesale market where dealers purchase cars. More

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    Italy’s Government Takes Aim at Taxi Shortages

    The government took steps this week to increase the supply of cabs after months of shortages, but critics say the problems with the industry run deeper.This summer, countless tourists, as well as residents of many top Italian destinations, found themselves in the fruitless pursuit of elusive game: a taxi.In Italy, where ride-sharing services like Uber, Lyft and Bolt have been met with strong resistance and are heavily restricted, social media sites channeled tirades describing hourslong taxi lines at train stations and airports. Callers to taxi dispatch numbers were put on hold for interminable waits. And regular taxi apps failed to find cars.Returning to Rome from Naples one Monday afternoon in June, a train trip that takes just over an hour, Daniele Renzoni said that he and his wife waited for more than an hour and a half at Termini station for a cab under a blazing sun.“Just image a long line of grumbling, frustrated people, complaining, cursing. Hot day, angry tourists, there’s not much else to say,” said Mr. Renzoni, who is retired. “Taxi drivers will tell you there’s too much traffic, too many requests, too much everything, but the fact is, the customer pays.”The situation is “a disgrace to Italy,” said Furio Truzzi, president of the consumer rights group Assoutenti, one of several associations that protested the shortage.Things got so bad that earlier this week the government intervened, introducing measures that would simplify procedures so that cities can issue new taxi licenses, including temporary ones to cover peak periods like the summer or major events like the Catholic Church’s Jubilee in 2025 and the Winter Olympics in Milan and Cortina d’Ampezzo in 2026.Major cities and those with international airports, like Rome, Milan and Naples, where the taxi crunch has been felt most keenly, will also be able to increase the number of licenses by 20 percent, though owners of the new permits must use electric or hybrid cars.In Rome, for example, there are now about 7,800 taxis, and if 20 percent more licenses were issued, there would be about 1,500 more. Parliament now has two months to convert the decree into law.But transportation experts said the decree falls far short of what they say is a needed overhaul of the industry, which holds outsized sway over local — and national — politics. Thanks to the taxi lobby, ride-sharing services are almost nonexistent in Italy, where Uber is the only platform in use, with many restrictions.The government lost an opportunity for real change, said Andrea Giuricin, a transportation economist at a research center at the University of Milan Bicocca. He said the best way to meet consumer needs would be to increase the number of licenses for Italy’s chauffeur services, known as N.C.C., which work with Uber.“It’s very difficult in Italy” because “there isn’t a culture of liberalization in general,” creating little opportunity for competition, said Professor Giuricin. Taxis “are a small but powerful lobby” that easily influences politics, “which is very weak” in Italy, he said.Taxis parked in the Piazza del Plebiscito in Naples during a strike last year. Taxi drivers are a powerful lobby, and ride-sharing services have only made timid inroads in Italy.Ciro Fusco/EPA, via ShutterstockAngela Stefania Bergantino, a professor of transportation economics at the University of Bari, pointed out that previous governments had tried to open up the taxi market. But they failed.“The problem is that taxis are regulated by municipal governments, which can find themselves captive in the sense that it is difficult for City Hall to implement policies that the cab lobby doesn’t like,” she said. “These are lobbies that have effective strike tools,” like wildcat strikes or traffic blockages that can paralyze entire cities, she said.Industry officials were dismissive of the new decree. “Much ado about nothing,” said Andrea Laguardia, director of Legacoop Produzione e Servizi, an association of taxi cooperatives. “The government presented these measures as crucial to resolving the taxi shortage,” he said, but city governments, which issue taxi licenses, could already issue more if warranted. The measures don’t “resolve the problem of urban mobility,” Mr. Laguardia said.According to a 2022 report by Italy’s transportation authority, Italy has roughly one taxi for every 2,000 people, fewer than other European countries like France or Spain.Italy’s competition watchdog said this month that it was also examining the industry.Representatives of drivers for chauffeur services, who have much to gain from any liberalization of the market, say they are being held hostage by the taxi lobby, even as the world becomes digital and a rebound in tourism increases demand.“We are losing out on rides because we can’t increase the number of cars on the road,” said Luigi Pacilli, the president of Federnoleggio, a group representing some N.C.C. drivers.“It’s a complete bluff,” he said of the new measures, which allow, but do not mandate, new licenses. Prime Minister Giorgia Meloni could shake things up, he said, “but I don’t know if she’ll have the will or desire to fight one of the strongest lobbies in Europe.”Taxi drivers say they are taking the hit for a plethora of problems: traffic in cities that slows cars to a snail’s pace, the surge in tourism after the pandemic’s peak and inefficient public transportation.“Let’s make local public transportation work well and then we can decide if more licenses are necessary,” said Loreno Bittarelli, the president of one of Italy’s largest taxi dispatch consortiums.The drivers say that critical shortages last only last a few months each year, and that demand slows to a standstill in winter. Adding new licenses would only stretch the winter fasting among more drivers.Above all, though licenses are issued by the city, they can then be sold by the drivers, for sums that can reach 250,000 euros, or about $276,000, depending on the city — a retirement nest egg for many. With an influx of new licenses, the value of an existing license would depreciate.City administrators fear cabbies could revolt and strike if the status quo changes. “If I decide to issue new licenses,” said Eugenio Patanè, Rome’s city councilor in charge of transportation, “I’m going to find 1,000 taxis blocking traffic in Piazza Venezia,” the downtown Rome square that taxi drivers habitually clog while protesting. More

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    July CPI report shows inflation gauge rose 3.2%, less than expected

    The consumer price index rose 3.2% from a year ago in July, a sign that inflation has lost at least some of its grip on the U.S. economy.
    Prices accelerated 0.2% for the month, in line with the Dow Jones estimate, the Bureau of Labor Statistics reported Thursday. However, the annual rate was slightly below the 3.3% forecast though higher than June.

    Excluding volatile food and energy prices so-called core CPI also increased 0.2% for the month, matching the estimate and equating to a 12-month rate of 4.7%, the lowest since October 2021. The annual rate for core also was slightly below a Dow Jones consensus estimate for 4.8%.
    Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up nearly 200 points and Treasury yields mostly lower.
    Almost all of the monthly inflation increase came from shelter costs, which rose 0.4% and were up 7.7% from a year ago. The BLS said more than 90% of the increase came from that category, which accounts for about one-third of the CPI weighting.
    Food prices increased 0.2% on the month, and the BLS said energy increased just 0.1% even though crude prices surged during the month and prices at the pump jumped as well.
    Used vehicle prices declined 1.3% and medical care services were off 0.4%.

    The comparatively tame inflation levels helped raise worker pay. Real wages increased 0.3% on the month and were up 1.1% from a year ago, the BLS said in a separate release.
    The annual rate for headline inflation, while below expectations, actually marked an increase from the 3% level in June.
    Together, the latest batch of data shows that while inflation has come well off its 40-year highs of mid-2022, it is still considerably above the 2% level where the Federal Reserve would like to see it and high enough that cuts in interest rates are unlikely anytime soon.
    “While inflation is moving in the right direction, the still-elevated level suggests that the Fed is some distance from cutting rates,” said Seema Shah, chief global strategist at Principal Asset Management. “Indeed, disinflation is unlikely to be smooth and will require some additional economic pain before the 2% target comes sustainably into view.”
    Decelerating levels, though, are at least taking some of the pressure off the Fed to keep tightening policy.
    After hiking benchmark interest rates 11 times since March 2022, central bank officials are widely expected to take a break in September. However, it’s up for debate what happens from there, and public statements from policymakers have shown disparate opinions.
    Earlier this week, regional Fed presidents John Williams of New York and Patrick Harker of Philadelphia made comments indicating they could see the rate hikes at an end. However, Governor Michelle Bowman said she expects more increases, while fellow Governor Christopher Waller also has pointed towards the possible need for additional hikes ahead.
    Regardless of whether the Fed approves any additional hikes, virtually all members have agreed that the higher rates are likely to stay in place for some time.
    The higher rates have yet to put a dent in economic growth: The first half of 2023 has seen GDP post gains of 2% and 2.4% in the first two quarters respectively, and the Atlanta Fed is tracking third-quarter growth of 4.1%. Payroll gains have been slowing but are still solid, and unemployment is near its lowest since late in 1969.
    Consumers have begun to be a bit stretched and increasingly are turning to credit cards and savings for their spending. Total credit card debt surpassed $1 trillion for the first time this year, according to New York Fed data.
    However, more economists are beginning to expect the U.S. can avoid a recession despite the aggressive rate hikes. Bank of America, Goldman Sachs and JPMorgan Chase all recently have forecast that a contraction is becoming less likely. More

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    Interest rates should stay around 5% for longer — even as inflation falls, top economist Jim O’Neill says

    The U.S. Federal Reserve is broadly expected to raise interest rates by another 25 basis points at its next policy meeting in September, but market pricing suggests the central bank will begin cutting in 2024, according to the CME Group’s FedWatch tool.
    “We should be keeping rates around the 5% area in most of the developed world, because they should have some sort of positive relation to the level of inflation, if we want it to be permanently stable,” O’Neill said.

    Jim O’Neill, former chief economist Goldman Sachs Group, in Italy in 2019.
    Alessia Pierdomenico | Bloomberg via Getty Images

    Veteran economist Jim O’Neill says central banks will need to keep interest rates up around 5% across major economies for longer than the market expects, even as inflation subsides.
    The U.S. Federal Reserve is broadly expected to raise interest rates by another 25 basis points at its next policy meeting in September, but market pricing suggests that the central bank will begin cutting in 2024, according to the CME Group’s FedWatch tool.

    Traders will be closely watching the U.S. consumer price index reading later for July on Thursday for indications on the Fed’s future rate trajectory.
    Economists expect the Thursday headline CPI to come in at 0.2% month-on-month and 3.3% annually, according to a Dow Jones consensus estimate. While this marks a modest increase from June as a result of higher gas prices, it is well below the four-decade high of an annual 8.5% notched a year go.

    Core inflation, which excludes volatile food and energy, has remained sticky and is expected to come in at 4.8% year-on-year in July. The core reading has also remained consistently well above target in the euro zone and the U.K., prompting central bankers to reiterate their commitments to keeping rates high for as long as necessary to bring inflation towards their 2% targets.
    Policymakers have largely pushed back on rate cut expectations, and O’Neill, senior adviser at Chatham House and former chair of Goldman Sachs Asset Management, agreed that decreases were likely a long way off.
    “I have to say in order to deal with the challenge of core inflation coming down and with it the whole overhang of all the stimulus that’s accumulated over the past decade plus, I think that’s right,” he told CNBC’s “Squawk Box Europe.”

    “I don’t quite get this view that rates have to automatically start coming back down again in order to have a permanently more balanced world, in my view, economically. We should be keeping rates around the 5% area in most of the developed world, because they should have some sort of positive relation to the level of inflation if we want it to be permanently stable.”
    O’Neill also suggested the U.S. is “in a decent position to avoid a recession,” noting that inflation expectations have remained fairly stable.
    “Given that some of the forces that the Fed has been fighting are starting to fade, I think it’s reasonable that certainly this mood and this response of markets is perhaps going to continue for a bit longer,” he said.
    “I do think the trend on inflation is improving. In fact, I think the next twist is probably going to be more good news for Europe rather than the U.S. because we’ve had a lot in the U.S. recently and it’s just sort of started in Europe.” More