LIVE MARKETS-Smoke and mirrors: Retail sales, jobless claims, import prices, et al

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SMOKE AND MIRRORS: RETAIL SALES, JOBLESS CLAIMS, IMPORT PRICES, ET AL

A cacophony of economic indicators assaulted investors on Thursday, showing solid consumer spending, falling jobless claims, rebounding factory activity and improved homebuilder sentiment. But is it all a mirage?

Receipts at U.S. retailers USRSL=ECI jumped by 0.6% in June, marking a robust rebound from May's 0.9% drop and breezing past the 0.1% increase analysts were expecting.

Digging below the headline, the biggest attention-grabber on the upside is the 1.2% increase in motor vehicles which offset a 0.8% decline in the woebegone department store segment.

Sales at gasoline stations were unchanged from May and off 4.4% year-over-year. The closely watched non-store retail sales metric - which includes online shopping - gained 0.4%.

Food and drink services rose by a healthy 0.6%, suggesting consumers' economic uncertainties are simmering down.

The "control" figure, which excludes autos, gasoline, building supplies and food services - and is most closely correlated with the personal expenditures element of GDP - rose by 0.5%, beating the 0.3% consensus.

"The death of the consumer has been greatly exaggerated – as a blowout retail sales number shows that consumers are still spending and are keeping the economy growing," writes Chris Zaccarelli, chief investment officer at Northlight Asset Management. "There has been a lot of talk about tariffs and the stock market back to all-time highs, but there has been less talk about the economy at full employment and a consumer who continues to spend."

"Retail results softened considerably in the immediate aftermath of the April tariff announcements that were much larger than had been anticipated." With the lion’s share of those tariffs subsequently delayed or reduced and expectations being adjusted more broadly, consumers appear to be bouncing back from their initial shock and opening their wallets a bit more freely, at least for the time being. The uncertainty that the shifting trade policy creates may accelerate some near-term spending, but higher prices over the longer term would have a dampening effect on consumption.

Moving to the labor market, 221,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI last week, the lowest reading since April and 14,000 fewer than economists predicted.

It marks a 3.1% drop from the prior week. The underlying trend, as measured by the four-week moving average of initial claims, has a slight downward bias, suggesting layoffs are on the wane, for now.

The unexpected dip was attributed to annual maintenance shutdowns of auto plants, outpoints Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

"The broad picture remains that the labor market is slowing," Tombs says, citing hiring intentions of regional Fed and NFIB surveys. "We expect jobless claims to snap back to about 250K over coming weeks."

On the other hand, ongoing jobless claims USJOBN=ECI, reported on a one-week lag, inched a negligible 0.1% higher to 1.956 million, or 9,000 fewer than analysts expected. Continuing claims remain very elevated, gliding along near the highest levels since December 2021, when the labor market was still dragging itself from the COVID ravine.

The data supports recent consumer survey data suggesting laid off workers are finding it increasingly difficult to find a replacement gig.

The cost of goods imported to the United States USIMP=ECI (excluding tariffs) eked out a 0.1% gain in June, per Labor Department Data.

The increase fell shy of the 0.3% consensus and marks a feeble bounce-back from May's downwardly revised 0.4% decrease.

Drilling down, a 0.8% drop in food/feed/drink and a 0.1% dip in motor vehicles/parts kept the headline muted. Excluding the nominal 0.1% gain in petroleum, import prices were unchanged on the month.

Year-over-year, import prices are off 0.2%.

While that's well south of Powell & Co.'s 2% annual inflation target, import/export prices differ from other major inflation indicators with things like currency exchange rates and foreign demand thrown into the mix.

Here's a chart that shows annual import/export price growth against the dollar index, which tracks the greenback against a basket of world currencies.

In housing market news, the mood among homebuilders has grown just a bit less dire this month.

The National Association of Homebuilders' USNAHB=ECI housing market index (HMI) gained one point to print at 33, a lackluster bounce from June's reading, which was the lowest the index has been since December 2022.

Even so, an NAHB number south of 50 indicates pessimism in the sector. An HMI reading of 33 remains extremely pessimistic.

"Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges,” writes NAHB chief economist Robert Dietz. “Single-family permits are down 6% on a year-to-date basis and builder traffic in the HMI is at a more than two-year low."

Turning to the manufacturing sector, Atlantic region factory activity appears to have staged a vigorous comeback this month.

The Philadelphia Federal Reserve's Business index (or, Philly Fed) USPFDB=ECI defied analyst expectations by leap-frogging into expansion territory, jumping to 15.9 from the previous month's reading of -4.0.

Combined with Tuesday's Empire State data, the report suggests manufacturing in the Northeast is cooking with gas, having regained its footing amid the fog of President Trump's chaotic trade policy.

A Philly Fed/Empire State number in positive territory indicates a monthly expansion of activity.

And finally, in ancient history, business inventories USBINV=ECI were unchanged in May, as expected.

(Stephen Culp)

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