“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological. Investor”
― Howard Marks

1. US Consumer Confidence Declines on Weaker Outlook for Economy — The Conference Board’s gauge of sentiment decreased to 100.4 from a downwardly revised 101.3 reading in May, data out Tuesday showed. The median estimate in a Bloomberg survey of economists called for a reading of 100.
June’s measure of expectations for the next six months fell nearly 2 points to 73, while present conditions increased from a downwardly revised May reading. Confidence has been subdued over the past few years as consumers contend with a higher cost of living, elevated borrowing costs and, more recently, a softening in the labor market. Only 12.5% of consumers expect business conditions to improve in the next six months, the smallest share since 2011.
2. McDonald’s Says Plant-Based Test Didn’t Pan Out in US — A test of its McPlant burger in San Francisco and Dallas “was not successful in either market,” Joe Erlinger, the chain’s US chief, said at the Wall Street Journal’s Global Food Forum in Chicago. That test wrapped up in 2022, the company said following the remarks. Instead of plant-based options, McDonald’s is investing in its chicken offerings as consumers lean toward that protein. The company sells more chicken than beef these days, he added.
3. GDP growth at slowest since 2022 — the American economy expanded at a 1.4% annual pace from January through March, the slowest quarterly growth since spring 2022, the government said Thursday in a slight upgrade from its previous estimate. Consumer spending grew at just a 1.5% rate, down from an initial estimate of 2%, in a sign that high interest rates may be taking a toll on the economy. The Commerce Department had previously estimated that the gross domestic product — the economy’s total output of goods and services — advanced at a 1.3% rate last quarter. After growing at a solid annual pace of more than 3% in the second half of 2023, consumer spending decelerated sharply last quarter. Spending on appliances, furniture and other goods fell by a 2.3% annual rate, while spending on travel, restaurant meals and other services rose at a 3.3% rate.
4. Slowing U.S. Inflation Fuels Expectations of Interest Rate Cuts — The core Personal Consumption Expenditures Price Index, which excludes volatile energy and food prices, increased 2.6% from a year ago, slowing from April’s 2.8% pace. The reading met the consensus of economists surveyed by The Wall Street Journal.
Core PCE inflation rose 0.1% in the month, compared to a 0.2% increase in April. The headline 12-month reading was 2.6%, slowing from April’s 2.7% pace. In the month, the PCE was flat after rising 0.3% in April, marking the first time consumer prices didn’t go up in six months. June PCE inflation is due July 26, just ahead of the next rate-setting Fed meeting on July 30- 31.

The week ahead — Economic data from Econoday.com:

Do more of what works and less of what doesn’t.

1. US Retail Sales Stall, Showing Signs of Consumer Strain — Sales rose just 0.1% on the month, one-tenth of a percentage point below the Dow Jones estimate, according to a Commerce Department report Tuesday that is adjusted for seasonality but not inflation. However, the result was slightly better than the downwardly revised 0.2% decline in April.
On a year-over-year basis, sales rose 2.3%. The sales number was worse when excluding autos, with a decline of 0.1% against the estimate for a 0.2% increase. The report comes with investors on edge about the direction of the economy and what that will mean for the future of monetary policy at the Federal Reserve. Consumer spending is responsible for about two-thirds of all economic activity, so any weakness could signal a retrenchment in growth while also pushing the Fed to begin cutting interest rates.
2. Biden Gives Legal Status to Immigrant Spouses of U.S. Citizens — President Biden announced a new immigration program Tuesday that provides a path to citizenship for hundreds of thousands of immigrants in the country illegally who are married to U.S. citizens. Biden plans to promote the announcement at the White House alongside members of Congress, immigration advocates and U.S. citizens who, because of arcane immigration rules, haven’t been able to sponsor their spouses for green cards. The program has the potential to benefit immigrants who have been living in the country at least a decade, offering them work permits, deportation protections—and a route for them to apply for green cards, which is the pathway to citizenship.
3. New US Home Construction Plunges to Slowest Pace Since June 2020 — New home construction in the US slumped in May to the slowest pace in four years, as higher-for-longer interest rates sap the housing industry’s momentum from earlier this year. Housing starts decreased 5.5% to a 1.28 million annualized rate last month, according to government data released Thursday. The figure was below all but one estimate in a Bloomberg survey of economists.
Building permits, which point to future construction, fell 3.8% to a 1.39 million annual rate, also the weakest since June 2020. The declines in starts and permits were broad across multifamily and single-family units. Authorized permits for single-family homes dropped for a fourth straight month to the slowest pace in a year.
4. U.S. Business Activity Grows as Europe Recovery Slows — The S&P Global U.S. Composite Purchasing Managers Index—which gauges activity in the manufacturing and services sectors—rose to 54.6 in June from 54.5 in May, marking a 26-month high. A level over 50 indicates expansion in private-sector activity. S&P Global’s composite Purchasing Managers Index for the eurozone, a measure of activity in its services and manufacturing sectors, fell to 50.8 in June from 52.2 in May. A reading above 50.0 points to an increase in activity, while a reading below that threshold points to a decline.

The week ahead — Economic data from Econoday.com:

“Yesterday’s home runs don’t win today’s games.” …

1. Inflation slows in May, with consumer prices up 3.3% from a year ago — The CPI, a broad inflation gauge that measures a basket of goods and services costs across the U.S. economy, held flat on the month though it increased 3.3% from a year ago, according to the department’s Bureau of Labor Statistics. Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago, compared with respective estimates of 0.3% and 3.5%. Though the top-line inflation numbers were lower for both the all-items and core measures, shelter inflation increased 0.4% on the month and was up 5.4% from a year ago. Housing-related numbers have been a sticking point in the Federal Reserve’s inflation battle and make up a heavy share of the CPI weighting.
Price increases were held in check, though, by a 2% drop in the energy index and just a 0.1% increase in food. Within the energy component, gas prices tumbled 3.6%. Another nettlesome inflation component, motor vehicle insurance, saw a 0.1% monthly decline though was still up more than 20% on an annual basis.
2. Fed Projects Just One Cut This Year Despite Mild Inflation Report — Federal Reserve officials penciled in just one interest-rate cut for this year, indicating most are in no hurry to lower rates, even after a widely watched report Wednesday showed inflation improved last month. The central bank also held its benchmark rate steady, in a range between 5.25% and 5.5%, a move that was widely expected. New economic projections showed 15 of 19 officials expect the Fed to cut rates this year, with that group roughly split between one or two rate cuts. The median, or midpoint, of those projections reflected expectations of one rate cut.
3. Import prices fall sharply in another sign of fading U.S. inflation — The import price index dropped 0.4% last month. Economists polled by the Wall Street Journal has forecast no change. Lower gasoline prices played a big role, but if energy is excluded, import prices still fell 0.3, the government said. The cost of imports shot up in the first four months of the year after a long period of decline, contributing to a mini-surge in U.S. inflation.

The week ahead — Economic data from Econoday.com:

“Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett

1. Job openings fall to lowest level since February 2021 — latest data from the Bureau of Labor Statistics released Tuesday showed there were 8.06 million jobs open at the end of April, a decrease from the 8.35 million job openings in March. March’s figure was revised lower from the 8.48 million open jobs initially reported. Economists surveyed by Bloomberg had expected the report to show 8.35 million openings in April. The Job Openings and Labor Turnover Survey (JOLTS) survey also showed 5.6 million hires were made during the month, little changed from March.
2. Boeing’s Starliner Launches NASA Astronauts After Setbacks — the space capsule, carrying astronauts Barry Wilmore and Sunita Williams, was launched Wednesday at 10:52 a.m. ET from Cape Canaveral, Fla. A NASA livestream showed Starliner shooting toward space after the flight began. The launch marked a major step forward for a program that had been slowed by repeated technical problems, and exacted a financial toll on Boeing. A successful mission would pave the way for NASA to have a second U.S. option for handling astronaut missions to the International Space Station, with Elon Musk’s SpaceX carrying out crewed flights for the agency since 2020. Starliner’s next steps include docking with the space station and, as soon as June 14, returning to Earth under parachutes. “There’s a lot of phases to this mission, and we just completed the first one,” Mark Nappi, a Boeing vice president overseeing the Starliner program, said at the briefing.
3. ECB Cuts Interest Rates for First Time Since 2019 — the ECB said it would reduce its key interest rate to 3.75% from 4%, its first rate cut in almost five years. Future interest-rate decisions will be based on incoming economic data, the bank said in a statement. The ECB’s rate-setting committee “is not pre-committing to a particular rate path,” the bank said. The rate cut is a significant moment for investors and the world economy. It marks an inflection point in recent monetary policy and sends a signal that relief is on the way for households, indebted governments and businesses that have reined in investments in the face of high borrowing costs.
The cut also potentially puts the ECB and the Fed on different tracks and widens an existing gap in borrowing costs between the U.S. and Europe. While this could boost Europe’s growth in the short term, the gap could also complicate the work of policymakers, especially in Europe.
4. Hiring Defied Expectations in May, With 272,000 New Jobs — Total nonfarm U.S. jobs increased a seasonally adjusted 272,000 jobs in May, the Labor Department reported on Friday, more than in April and well above the 190,000 that economists had expected. Average hourly earnings also topped forecasts, rising 4.1% from a year earlier. In a report that was otherwise strong almost across the board, the one caveat was the unemployment rate, which ticked up from 3.9% in April. It was the first time in more than two years that the jobless rate hit 4%.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of May 24th through May 31st, 2024. We are away for some needed R&R.

Have a good week.

The staffs at EGS.