RETAILING

U.S. Industrial Production Rebounded in June Measure of output at factories, mines and utilities rose a seasonally adjusted 0.6%

(…) May industrial production was revised down to a 0.5% decline.

From a year earlier, industrial production rose 3.8% in June.

Tuesday’s report showed output in the sometimes-volatile mining index rose 1.2% in June and exceeded the level of its previous historical peak reached in December 2014. A rebound in energy prices has spurred more drilling in recent quarters.

Manufacturing output, the biggest component of industrial production, rose a strong 0.8% in June after falling 1.0% the prior month.

Much of the increase was due to a rebound in the production of motor vehicles and parts, which had fallen sharply in May because of a disruption at a parts supplier. Factory output excluding motor vehicles and parts increased 0.3% in June. (…)

Capacity use, a measure of slack in the industrial economy, increased 0.3 percentage point to 78.0% in June.

Strong Retail Sales in June Boosted Growth Americans boosted their spending at retailers in June, capping a strong quarter of consumption that is expected to help ramp up economic growth.

Retail sales—a measure of spending at U.S. stores, websites and restaurants—rose 0.5% in June from the prior month, the Commerce Department said Monday. May’s already strong spending growth was revised up to a robust 1.3% from 0.8%. (…)

When excluding gasoline and autos, retail sales rose 0.3% from May. When excluding gas, cars, building supplies and food services—a gauge followed by economists because it feeds directly into quarterly GDP estimates—spending was flat in June, according to analysts. But spending growth was up 0.8% in May for this measure, again pointing to robust consumer demand.

Compared with a year earlier, overall sales were up 6.6% in June. Spending continued to outpace inflation, with the Labor Department’s consumer-price index rising 2.9% in June from a year earlier. (…)

• U.S. Retail Sales Gain Moderates

Haver Analytics is more moderate:

Consumers continued spending last month, but at a moderated pace. Total retail sales increased 0.5% during June following a 1.3% May increase, revised from 0.8%. The 6.6% y/y increase was, however, the strongest since February 2011. (…) Excluding motor vehicles and parts, retail sales rose 0.4% last month after a 1.4% increase, revised from 0.9%. The gain also matched expectations. A measure of the underlying pace of retail spending is nonauto sales growth excluding gasoline and building materials. These sales held steady last month (+4.9% y/y) after a 0.8% rise.

Sales patterns amongst categories were mixed last month. A 1.3% increase (10.2% y/y) in sales of nonstore retailers led the growth in overall retail sales as it followed a 0.4% rise. Building materials & garden equipment store sales rose 0.8% (6.2% y/y) after a 2.5% jump. Sales at furniture & home furnishings stores improved 0.6% (4.8% y/y) following 1.4% decline. (…)

  

This pretty well ensures a strong Q3 as retail inventories are likely depleted going into the important back-to-school season. Fed beware…

Powell Says Fed Should Keep Gradually Raising Interest Rates

(…) “Incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year,” he said in prepared testimony that offered a roundly upbeat assessment. “The best way forward is to keep gradually raising” rates.

Those steps “reflect the strong performance of the economy and are intended to help make sure that this trend continues,” he said. (…)

In his testimony, Mr. Powell offered just one line on trade policy, calling the ultimate outcome of current discussions “difficult to predict.”

(…) moderate wage growth also tells us that the job market is not causing high inflation,” he said. (…)

• Fed’s Powell: ‘Several years’ of strong jobs, low inflation still ahead

• Powell plays down trade risks in bullish testimony

• The Dark Side to Rising Consumer Spending

(…) But the revised sales figures also suggest that people are socking away less money than previously reported. The personal saving rate—the share of after-tax income that doesn’t get spent—was previously reported at 3.2% in May versus 3.8% a year earlier, and it seems likely it will be revised even lower. And as they save less, people are borrowing more. (…)

J.B. Hunt Profit, Revenues Soar on Surging Freight Demand

J.B. Hunt Transport Services Inc. JBHT -0.09% reported a 55% gain in second-quarter earnings to $151.7 million, easily beating expectations as higher freight rates and strong shipping demand boosted revenue and profit across the company’s trucking and logistics operations.

J.B. Hunt’s revenue rose 24% to $2.14 billion, the company said Monday, topping consensus estimates of $2.05 billion from analysts. The second-quarter profit reached $1.37 per share compared with 88 cents per share, or $97.9 million, in the same quarter a year ago.

Analysts polled by Thomson Reuters estimated J.B. Hunt would earn $1.28 a share for the quarter. (…)

J.B. Hunt reported double-digit increases in revenue per load, a key measure of pricing strength, in its truck-rail intermodal, logistics and trucking segments.

Revenue in the intermodal segment, which makes up about half the company’s overall business, rose 16% to $1.16 billion and operating profit increased 22% to $134 million. The company said rate increases and other gains were partially offset by increases in costs for items such as rail purchased transportation, driver pay, retention and recruiting and equipment ownership. (…)

Canadian Factory Sales Rebound With Stronger-Than-Expected Gain

CHINA SLOWING

The SMI report from World Economics supports the above forecast. (The Daily Shot)

SENTIMENT WATCH

The Oil Market Is Getting More Dangerous The 4.2% plunge in U.S. oil prices Monday was the latest sign that the dynamics shaping the biggest commodity market have changed since the crude rally began

(…) Monday’s tumble follows a 5% drop in U.S. benchmark oil last Wednesday, its biggest one-day loss in more than a year, which was largely triggered by investor jitters over higher supply from Libya. That day investors also ignored otherwise bullish news: The U.S. Energy Information Administration reported crude stockpiles dropped the most since September 2016 during the week ended July 6. (…)

Meanwhile, commodities across the board also have been knocked down by escalating trade-war concerns, as some observers fear a global economic slowdown will lower demand for materials.

The violent swings are leading many analysts and traders to say the market has become more vulnerable to speculators and algorithmic trading accelerating downturns. (…)

“What you’re faced with is a market dealing with a lot of uncertainty,” said Michael Hans, chief investment officer of Clarfeld Financial Advisors. “It’s very difficult to have a clear understanding of what major producers are ultimately going to do.” (…)

Same can be said about trade politics…

Japan, EU Sign Trade Deal: ‘We Stand Together Against Protectionism’ The leaders of Japan and the European Union signed a deal to create one of the world’s largest liberalized trade zones, a contrast to escalating trade disputes between the U.S. and several of its trading partners.

Bloomberg’s Tariff Impact Tracker After months of dire warnings that imposing tariffs would hurt growth, companies are beginning to report actual, concrete effects from the global trade war.

Now it’s getting real. U.S.-imposed tariffs on goods from China, the EU and other countries have been met with similar tariffs on American goods. Companies that have warned for months that imposing tariffs would hurt growth and threaten jobs are beginning to report actual, concrete effects from the global trade war. (…)

Whirlpool Wanted Washer Tariffs. It Wasn’t Ready for a Trade Showdown. Trade barriers can ricochet through an economy in ways even proponents don’t expect, as shown by washers, among the first consumer products targeted.

(…) In the months since washing machine tariffs took effect in February, LG and Samsung have pressed on with investments in the U.S., given that they now face the higher cost of shipping goods in from abroad. The overseas companies and Whirlpool have also increased hiring in the U.S. But appliance prices have risen for consumers, and there are signs of waning demand. (…)

“Raw-material costs have risen substantially,” Mr. Bitzer said on the April investor call, primarily blaming steel and aluminum tariffs. Most of the 200-pound weight of a washing machine is in its steel and aluminum parts. (…)

The resulting tariffs apply a 20% duty on the first 1.2 million washing machines brought into the country each year, and a 50% duty on quantities above that threshold. The barriers are expected to remain in place for at least three years. (…)

Only about 3.7% of the average appliance sale is profit, according to market research firm IBISWorld, leaving little room to absorb new tariffs or increased costs without raising prices. Components, such as steel, make up over half the cost of an average appliance. Labor covers an additional 10%. (…)

Amid the continuing tariff threats, both LG and Samsung decided to build washer plants in the U.S. (…)

Since the tariffs were announced: Samsung stock is down 9%, LG’s 29% and Whirlpool’s 9%. Consumer prices: +20%. Clothes washers shipments: –18%