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US Economy Looks Resilient as Retailers, Industry Surge

By on July 16, 2016

WASHINGTON – Americans spent more money at retailers and factories revved up production in June, offering encouraging signs of the U.S. economy’s resilience in the face of global headwinds.

Industrial production shot up 0.6 percent, fueled by a big rebound in auto output. It was the best showing since last August. Meanwhile, retail sales also rose 0.6 percent last month, three times the gain in May, with demand strong in a number of areas.

Inflation pressures remained modest, with consumer prices climbing 0.2 percent in June. Prices are up just 1 percent from a year ago, still well below the Federal Reserve’s 2 percent target.

The new reports Friday came a week after the government’s blockbuster jobs report, which showed the economy created 287,000 jobs in June. It marked a major bounce back after a dismal gain of just 11,000 jobs the previous month. May’s result, coupled with a lackluster showing in April, had raised worries that the U.S. jobs machine was starting to sputter.

Analysts said the strong job growth in June and solid consumer spending should provide good momentum for the economy heading into the second half of the year.

The economy grew at an anemic 1.1 percent rate in the first quarter, as measured by the gross domestic product, held back by a slowdown in consumer spending and troubles in manufacturing. Analysts are hopeful that GDP growth strengthened to 2 percent or better in the second quarter, and many are looking for further acceleration in the current quarter.

“It is beyond doubt that consumers have shaken off their winter blues,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight. “Despite rising gasoline prices, consumers are opening their wallets.” Christopher said that consumer spending and housing would help bolster growth going forward.

Chris Rupkey, chief financial economist at MUFG Union Bank, said he believed GDP would be closer to 3 percent in the spring quarter, led by a surge in consumer spending.

“Economic growth is through the roof in the second quarter,” Rupkey said. “There are a lot of dollars going through cash registers out there.”

In this April 6, 2016, photo, an assembly line of new 2016 Altimas await backseat installations at the Nissan Canton Vehicle Assembly Plant in Canton, Miss. On Friday, July 15, 2016, the Federal Reserve reports on U.S. industrial production for June. (AP Photo/Rogelio V. Solis)

An assembly line of new 2016 Altimas await backseat installations at the Nissan Canton Vehicle Assembly Plant in Canton, Miss. (AP Photo/Rogelio V. Solis)

Analysts were also encouraged by the latest improvement in industrial production, which followed a 0.3 percent decline in May. The key manufacturing sector showed a 0.4 percent increase, which reflected a jump in autos and auto parts. Utility output expanded 2.4 percent, stemming from higher electricity production as warmer weather boosted demand for air conditioning.

Even the country’s beleaguered energy sector recorded gains. Mining, which covers oil production, inched up 0.2 percent. It was the second small monthly increase after eighth straight monthly declines as this sector struggled with a plunge in oil prices.

Manufacturing overall has struggled for more than a year amid weakness in global markets and a strong dollar, which has also hurt exports by making American products more expensive overseas.

Jennifer Lee, senior economist at BMO Capital Markets, said she believed manufacturing was starting to show “upward momentum.” Other economists, however, cautioned against reading too much into June’s rebound, contending that obstacles remained in manufacturing.

“The bulk of manufacturing faces the same problems today that it faced a year ago – too much inventory in the system at home and too strong of a dollar … in the world market,” said Michael Montgomery, U.S. economist at Global Insight.

The report on consumer prices showed a 0.2 percent gain in core inflation, which excludes the volatile categories of food and energy. Over the past 12 months, core inflation has risen 2.3 percent.

The Fed, which meets July 26-27, wants to see evidence that inflation is ticking up before raising short-term U.S. interest rates again. In December, it raised rates for the first time since 2006. But it has hesitated to follow up with more increases.

The American job market looked weak in May before rebounding in June. And Britain’s June 23 decision to leave the European Union has rattled financial markets and raised uncertainty about the global economy.

For June, food prices fell for a second straight month. Energy prices rose 1.3 percent, including a 3.3 percent increase in gasoline prices. New car and truck prices fell for the third straight month and are down 3.1 percent over the past year. Clothing prices fell 0.4 percent in June.

“The Fed will welcome the continued strength in consumer spending and the latest positive jobs report, but it’s clearly in zero rush to tighten policy,” Sal Guatieri, director of economic research at BMO Capital Markets, wrote in a research note.

Many analysts expect only one Fed rate hike this year, possibly not until December.

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