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08/19/2016
Market Update

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The U.S. budget deficit increased in July as expenditures outpaced revenue by $113 billion, partly as a result of increased Social Security and Medicare spending on aging Americans. The year-to-date deficit was up a considerable 10.3% to $513.7 billion. Revenue in the last 12 months ending July 2016 grew only 1.2%, the lowest annual growth in six years. Personal income taxes have treaded water this year thanks to consistent job growth; but corporate tax revenues declined over the past four quarters due to lower profits.
This Week
  • The U.S. budget deficit increased in July as expenditures outpaced revenue by $113 billion, partly as a result of increased Social Security and Medicare spending on aging Americans. The year-to-date deficit was up a considerable 10.3% to $513.7 billion. Revenue in the last 12 months ending July 2016 grew only 1.2%, the lowest annual growth in six years. Personal income taxes have treaded water this year thanks to consistent job growth; but corporate tax revenues declined over the past four quarters due to lower profits.
  • Retail sales were flat in July, as consumers spent little money on anything but vehicles. Excluding automobiles, sales fell by 0.3% — the first decline since March. Supermarket, building materials and sporting goods sales were especially anemic. As consumer spending drives a major segment of the economy, weak retail sales made for a sluggish start to the third quarter.
  • Second-quarter non-farm productivity fell by 0.5%, marking the third consecutive quarterly decline for output and the longest negative streak since reporting began in the mid-1940s. A persistent slump in business investment continues to undermine productivity.
  • July’s producer price index, which measures the prices U.S. companies pay to other firms for goods and services, fell by 0.4%. A 0.3% decline in services brought a three-month rising trend to a close, suggesting waning overall economic demand.
  • Import prices rose by a modest 0.1% in July (despite lower fuel costs) and export prices grew by 0.2%, suggesting that inflation may be gaining a small foothold through international trade. Higher prices for non-petroleum imports (including food and industrial supplies) were responsible for the increase.
  • The University of Michigan’s preliminary August consumer sentiment reading was essentially flat. Americans’ feelings about current economic conditions deteriorated slightly from July; but they expressed optimism about future economic strength.
  • The eurozone’s latest second-quarter gross domestic product reading depicted diluted growth following the Brexit vote, as expected. The four largest countries in the region (France, Germany, Spain and Italy) all experienced declines in growth; although Greece and Latvia showed improvement.
  • Chinese consumer prices increased by 0.2% in July, but remained well below the official 3% annual inflation target at 1.7% year over year. Producer prices showed some life, but remained in negative territory from a year earlier. Industrial production rose by 6% in July from one year earlier, and slowed by 0.2% from the previous month. Retail sales growth softened in July, but remained above 10% year over year: a sign of success in China’s transition to a consumption-based economy.
  • Japan’s July producer prices were unchanged from the previous month, yet fell by 3.9% from a year ago as the country continued a multi-year struggle against deflation. Petroleum and coal products, nonferrous metals and chemicals and related products have weakened since July 2015. The Bank of Japan expects deflationary conditions to continue due to falling commodity prices.

 

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