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07/19/2016
Market Update

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Strong economic data and a promising retail sales report suggest the economy regained momentum at the end of the quarter.
This Week
  • Strong economic data and a promising retail sales report suggest the economy regained momentum at the end of the quarter.
  • Retail sales advanced by a much higher-than-expected 0.6% in June, picking up from May’s downward-revised gains on the strength of e-commerce, sporting goods & hobbies, and building materials & garden equipment.
  • Industrial production surged 0.6% in June — the strongest since July 2015 — primarily on the strength of automotive manufacturing and commodity-related recoveries in utilities and mining.
  • On the other hand, the consumer outlook dimmed amid Brexit-related uncertainty. Hopefully sentiment does not translate to spending fatigue.
  • U.S. consumer prices increased 0.2% in June by both the headline (all-inclusive) and core (excluding food and gasoline) measures. Year-over-year headline prices have advanced by 1.0%, while the core measure stands at 2.3%, indicating that disinflationary pressures are still being worked out as energy prices recover.
  • Initial jobless claims were unchanged at 254,000 for the week ending July 9, and continuing claims increased 32,000 for the week of July 2. The four-week average for both new and continuing claims decreased, signaling further momentum in the labor market.
  • Job openings dropped in May, and the percentage of workers who were hired, laid off, or have quit their jobs was unchanged. The lack of expansion mirrors May’s discouraging employment report, which was followed by a sharp recovery in June.
  • Second-quarter gains in consumer sentiment reversed in an early July survey, according to the University of Michigan. A sharp divergence between current conditions, which remain strong, and one of the weakest readings on expectations in the past two years could be due partially to Brexit uncertainty and concerns that labor market momentum may deteriorate.
  • The Bank of England’s Monetary Policy Committee announced no change to its bank rate despite expectations for action in Brexit’s wake. However, meeting minutes signaled a possible, though unspecified, stimulus response at August’s meeting.
  • Eurozone industrial production fell sharply in May, registering its worst performance since 2012 and mostly offsetting April’s gain. Energy production slumped 4.3%, followed by capital goods and consumer durables, which dropped 2.3% and 1.4%, respectively. June manufacturing reports were positive, but the sector is not poised to contribute much to second-quarter economic growth.
  • Producer prices in Japan eased by 0.1% in June, although the year-over-year decline was a pronounced 4.2% as the country remains plagued by deflation. The yen has remained strong, and the Bank of Japan expects price weakness to continue as a result of international commodity-price dynamics.
  • The Chinese economy narrowly beat second-quarter GDP estimates with year-over-year growth of 6.7%, repeating the first quarter’s pace primarily on the strength of real estate spending and government infrastructure outlays.

 

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