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A Flurry of Economic Data

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More economic data hits the tape in today’s pre-market, with a new Consumer Price Index (CPI) for May out this morning: +0.1% on the headline was in-line with expectations, though down from the +0.3% from April. The CPI print follows the Producer Price Index (PPI) yesterday, which also came in-line with expectations at +0.1%.

These data points are of high importance to regulating bodies like the Federal Reserve, which uses this information to decide on interest rates in the future. That both reads are up from last month — but not up too much — puts us in familiar, dare I say “comfortable,” territory: inflation is present, but only in increments, making it manageable without necessitating a change to the Fed funds rate, which is currently between 2.25%-2.5%.

Ex-food & energy (aka CPI “core,” which strips out volatile pricing in these commodities) also registered +0.1%, which was down 10 basis points from the consensus estimate. This matches the core read from last month. Year over year on headline came to +1.8% (down from the 2% expected) and year-over-year core of 2.0% was a notch lower than the April read of 2.1%.

Again, none of this presents a challenge toward interest rates being raised or cut in the very near-term. That said, analysts see a high likelihood that a 25 basis-point cut is coming sometime this summer. With such “Goldilocks” numbers, why in the world would a majority of projections say interest rates will be brought back down to the 2.00-2.25% range? Especially with such strength in Q1 GDP at +3.1%, and an Unemployment Rate steady at an historically low 3.6%?

The answer must be in what analysts expect to see in this data for the next couple months: consider the ongoing trade war with China, and that the GDP number from a quarter ago was based substantially on new business investment (inventory). Just these two points might lead one to think Q2 GDP may shrink to a 1-handle, with production falling as the Trump administration attempts to extract IP rights from Chinese trade negotiators.

Last week’s U.S. jobs data from the Bureau of Labor Statistics (BLS) registered the lowest monthly job growth since February. The 3-month average also demonstrates slowing growth in employment, which is to be expected this late in the growth cycle. Will we see a continued slowing in recently robust industries like Construction and Manufacturing, based on productivity issues stemming from the trade war?

Stay tuned. Pre-market futures are down marginally on major indexes. The market looks toward a possible second straight week in the green, but sentiment will have to change at some point along the way.