Weekly economic and financial commentary

Summary

United States: Economic Data Clears the Bar, but Doesn’t Raise It

• The economic data calendar was packed this week. Better-than-expected retail sales, industrial production and home construction suggest activity has regained its footing after a loss of momentum during the first five months of the year. At the same time, data on inflation indicate the costs of tariffs are starting to get passed on to consumers, albeit slowly.

• Next week: Existing Homes Sales (Wed.), Durable Goods Orders (Fri.)

International: Mixed Signals from Foreign Economies

• This week’s economic data painted a mixed global picture. China’s Q2 GDP growth beat expectations but underlying momentum appears fragile. The United Kingdom faced an unwelcome inflation surprise, Canada saw its first inflation uptick in months, while Japan’s inflation cooled modestly. Meanwhile, in emerging markets, India’s inflation dropped sharply, strengthening the case for further easing.

• Next week: U.K. PMIs (Thu.), European Central Bank (Thu.)

Interest Rate Watch: Fighting Fire with Fire

• The potential firing of Chair Powell jolted markets this week. Even if President Trump were to bring in a dovish successor, changes in monetary policy are determined by a voting committee and the long end of the curve is influenced by factors outside the Federal Reserve's purview.

Credit Market Insights: Methodological Changes Cloud Recent Consumer Credit Trends

• Overall credit outstanding dropped by a whopping $110.9 billion in December 2024, the largest single-month decline since records began in 1968. Although more modest credit uptake lends additional evidence that tariffs are weakening consumer resolve, this nosedive likely overstates the extent to which consumers are pulling back.

Topic of the Week: Foreign Suppliers Resisting Tariff Pressures

• If foreign exporters were absorbing the cost of tariffs, U.S. import prices would be declining in proportion to the rise in the tariff rate. Yet, nonfuel import prices, which exclude the cost of tariffs, rose 1.2% year-over-year in June. With little relief on import prices, domestic firms are stomaching the cost of higher tariffs and starting to pass it on to consumers.

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