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A Macro View - Hoping for the Best, Preparing for the Worst
Chart of the Week
- The yield curve has continued its inversion trajectory, signaling lower future real short-term rates. This is confirmed by the market-implied expected federal funds rate, which is about 100 basis points lower than the current rate (i.e., 1%-1.25% range), compared with 2%-2.25% for contracts expiring on June 15, 2020.
- The US dollar continues to strengthen. This partially explains the 5.80% decline in exports, which was one of the biggest subtractors in weaker Q22019 Gross Domestic Product (GDP) growth.
- Output per hour decreased in Q22019. This further reflects the slowdown in GDP growth compared with its heady showing in Q12019.
- Retail sales were strong in July. Despite headwinds facing the broader economy, Retail Sales excluding autos) rose 1% in July and a healthy 7.50% for Q22019, demonstrating strong consumer confidence.
- Housing prices are holding steady. The FHFA House Price Index grew at an annual rate of nearly 4.80% for Q22019, even though other housing activity indicators remain soft.
- Industrial production continues to disappoint. The Q22019 numbers reflect a decline of 2.20% in annualized growth, well below the poor reading of -1.90% in annualized growth for Q12019. The drastic drop of 13.3 0% in annualized growth for shipments and durable goods orders in Q22019 further reflects this decline.
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