Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices ended higher last week, after the Federal Reserve kicked off its monetary easing cycle with a 50-basis point interest rate cut. The S&P 500 Index rose 1.4% in total return for the week, while the Dow Jones Industrial Average rose 1.7% and the Nasdaq Composite Index rose 1.5%. The yield curve steepened modestly with the 6-month U.S. Treasury yield dropping, while the 10-year U.S. Treasury yield rose last week. Gold rose and hit fresh records Friday.
Lower core inflation data paired with a weakening labor market resulted in the Federal Reserve’s decision to begin cutting interest rates. At Fifth Third, we believe Fed officials are confident that inflation will continue to move toward their 2.0% target and are now placing greater emphasis on the second part of their dual mandate: employment. As a result of slowing labor market data over the past few months, the Fed felt compelled to begin an interest rate cutting cycle to ensure that the domestic labor market remains resilient. Expectations are mixed on whether the next Fed rate cut will be 25- or 50-basis points. The committee meets again in early November.
In other economic news, U.S. retail sales unexpectedly rose in August, boosted by strength in online purchases. Retail sales rose 0.1% last month and were up 2.1% from a year earlier. Industrial and manufacturing production were stronger than expected in August. Capacity utilization, a measure of how fully industrial firms are using their resources, increased to 78.0% in August from 77.4% in July. Housing starts rebounded by more than anticipated last month, jumping 9.6% in August. Single-family housing starts jumped 15.8% and building permits, a proxy for future construction, also rose.
In the week ahead, the U.S. economic calendar includes new and pending home sales, durable goods orders and a final measure of economic growth for the second quarter. August personal consumption expenditures data is released Friday. Core personal consumption expenditures, the Fed’s preferred measure of inflation, is expected to have picked up modestly last month.
As always, we’ll be watching and reporting back to you. Thank you.
