Economy in Brief

At today's meeting of the Federal Open Market Committee (FOMC), the Fed announced a 75-basis point increase in the target range for the Federal funds rate to 2.25% - 2.50%. It was the second consecutive 75-basis point move and placed the rate at the highest level since July 2019, up from a low near zero in mid-March.

The Fed has raised the funds rate at four consecutive meetings. The latest move was in line with expectations in the Action Economics Forecast Survey and it was endorsed by each member of the FOMC.

Fed Chairman Jerome H. Powell indicated that "From the standpoint of our Congressional mandate to support maximum employment and price stability, the current picture is plain to see: The labor market is extremely tight, and inflation is much too high."

The statement which accompanied today's action indicated that the Fed "anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

The Fed also indicated that "Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures."

The statement issued following today's meeting can be found here.

The distributive trades survey for the United Kingdom shows broad weakness in July for the retail sector and broad weakness for volumes in the wholesale sector as well. The expectations readings for both portions of the survey show weak current standings as well as a weakening outlook.

Retailing The retail sector in July shows a -4 reading for sales compared to one-year ago; that is a slight improvement from -5 in June, but it deteriorates from -1 in May. Orders, compared to one year ago, log a -13 reading in July, down from -8 in June and 2 in May. Sales evaluated for the time of year perform better with a - 9 reading in July compared to a -19 reading in June and a reading of zero in May. The stock sales relationship shows an increase to 29 in July from 12 in June and 11 in May. The standings for these four metrics show sales compared to a year ago with a 24.6 percentile standing, orders compared to a year ago with a 20.8 percentile standing, sales for the time of year at a 38.7 percentile standing, and the stock sales relationship at a very high 95.4 percentile standing indicating potentially that inventories are becoming overbuilt.

Looking ahead at expectations for retail performance, in August expected sales compared to a year ago dive to a -14 reading from -2 in July. Orders log a much weaker -28 compared to a -10 in July. Sales for the time of year log a -6 reading which is a significant improvement from -25 in July while the stock sales ratio climbs to 25 from 12 in July. Ranking these standings, expected sales compared to a year ago have a weak 11.6 percentile standing, expected orders for a year ago have a weak 6.3 percentile standing, sales for the time of year have a better, but still quite weak, 37.2 percentile standing; the expected stock sales ratio is very strong with a 97.2 percentile standing. On balance, retailing and its outlook remain quite weak.

Wholesaling The distributive trade assessment for wholesaling shows sales compared to a year ago at -13 in July, weaker than June’s rating and a sharp reversal from 30 in May. Orders compared to a year ago are up to an 11 reading in July, higher than a reading of 1 in June but well short of a reading of 19 in May. Sales for the time of year fell to a reading of 9 in July compared to 20 in June and 41 in May. The stock-sales relationship in July is at 10 which is up from -8 in June and is even with 10 in May. The percentile standings for wholesale sales data are generally firmer than they are for retailing in June but for the most part still weak with sales compared to a year ago at a 15.8 percentile standing, orders compared to a year ago have a 53.2 percentile standing; that is above the historic median. Sales for the time of year have a 43-percentile standing while the stock sales relationship has a 38-percentile standing.

Looking at expectations for wholesaling in August, expected sales fall sharply to a - 18 reading from 9 in July and stronger values in June and May. Orders compared to a year ago fall to zero in August compared to 8 in July and much stronger values in June and May. Sales for the time of year fall to a -11 reading from 12 in July and much stronger readings in June and in May. The stock sales relationship logs a 10 reading in August which is up sharply from -6 in July and readings close to zero in June and May. There is clear and sharp deterioration compared to May and June.

Neither the retailing nor the wholesaling portions of the survey are very reassuring. The best standing in the series apart from the stock sales relationship comes from a marginally above median reading for wholesaling orders compared to a year ago. Everything else shows weakness compared to historic median standings. Given the situation for the economy and in Europe, this is not surprising.