U.S. Review
An Uneven Recovery will Keep the Fed on Hold
• Retail sales came in unchanged in July, which was below consensus expectations and core sales rose only modestly over the month. The largest declines were in general merchandise, due in part to slower department store sales, and motor vehicle sales. Although retail sales started the quarter off on a disappointing note, we continue to expect consumer spending to increase at around a 2.6 percent pace in the third quarter.
• Much attention is being placed on the timing of the first rate hike. Although there is some discussion of an earlier rate hike, economic conditions still warrant the Fed to take a cautious approach in normalizing policy.
Global Review
Is Foreign Economic Activity Falling Apart?
• Data released this week showed that real GDP in Japan tumbled 6.8 percent at an annualized rate in Q2. Much of this decline, however, is due to the transitory effects of the consumption tax hike that took place on April 1.
• Of more concern to us is the stagnation of economic activity in the Eurozone that has occurred over the past year. With CPI inflation already barely above zero percent, weakness in real GDP will not do much to alleviate concerns that the Eurozone
is on the cusp of slipping into a mild deflationary environment.
Read the full report: Economic Research