Will the U.S. economy continue to grow and at a pace that favors the recreational marine and other industries that depend on consumers who have meaningful disposable income and the will to spend?
Reports last week suggest that the economy is now struggling to grow and that government inaction on tax reform and proposed changes to the nation’s health care system are sapping the confidence of U.S. small businesses.
At the start of the week came the promising news from the Federal Reserve that consumer credit rose in May at the fastest rate in seven months — $18.4 billion, or 5.8 percent.
Revolving credit, such as credit cards, climbed 8.7 percent. Non-revolving credit, a category that typically includes auto and student loans, rose 4.7 percent.
“It must come as a relief to the Fed, given the softening in auto lending and credit card usage,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a statement, a remark that MarketWatch included in a report on the credit picture.
By the end of the week the consumer credit increase was overshadowed by more recent data that revealed weak June retail sales and slumping confidence among consumers and small businesses.
The Commerce Department said Friday that retail sales fell 0.2 percent last month, slipping for the second month in a row. Partially cushioning the blow was a tame inflation report.
The Labor Department said the Consumer Price Index was unchanged in June. Market Watch reported that the rate of inflation during the past 12 months slowed to 1.6 percent in June from 1.9 percent in May. The rate is also down from a five-year high of 2.7 percent five months ago.
The measure known as core CPI, which removes volatile food and energy costs, edged up 0.1 percent in June. It has risen by the same small amount for three months in a row.
"[Friday’s] reports imply that the Fed will go very slowly normalizing rates, but it also means that businesses will have to really hustle to find ways to keep earnings growing strongly," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., told Reuters.
That won’t be easy, and America’s small businesses know it. The Small Business Optimism Index, produced by the National Federation of Independent Business, fell 0.9 points in June, to 103.6.
The NFIB said the index has fallen 2.5 points since it peaked in January after the election of Donald Trump as president gave business leaders cause for optimism.
The decline is “no doubt in part due to the mess in Washington, D.C.,” the NFIB said.
“Progress is being made, but poorly communicated, and the biggest issues, health care and tax reform, remain stuck in the bowels of Washington politics,” the business group added. “Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.”
The NFIB’s comments came on Tuesday. On Friday the University of Michigan said its preliminary Consumer Sentiment Index for July slipped to 93.1 from 95.1 at the end of June.
Richard Curtin, chief economist of the university’s Surveys of Consumers, said the survey’s Expectations Index has fallen 10 points below its January 2017 peak.
“In contrast, consumers' assessments of current economic conditions regained the March 2017 peak, the highest level since the July 2005 survey,” Curtin said in a statement that accompanied the latest survey results. “Overall, the recent data follow the same pattern repeatedly recorded around past cyclical peaks: Expectations start to post significant declines, while assessments of current economic conditions continue to reach new peaks.
“To be sure, the data do not suggest an impending recession. Rather, the data indicate that hopes for a prolonged period of 3 percent GDP growth sparked by Trump's victory have largely vanished, aside from a temporary snapback expected in the second quarter. The declines recorded are now consistent with just above 2 percent GDP growth in 2017.”
At midweek, Fed chairwoman Janet Yellen gave Congress an optimistic report, focusing on strong job growth. However, as the New York Times reported, she said the central bank is closely watching inflation’s minimal increase and weighing the trend’s policy on interest rates.
Speaking two days before the latest Consumer Price Index came out, she said, “It’s premature to reach the judgment that we’re not on the path to 2 percent inflation over the next couple of years. We’re watching this very closely and stand ready to adjust our policy if it appears the inflation undershoot will be persistent.”
Adjusting the policy could mean slowing the central bank’s anticipated pace of interest rates as long as inflation remains minimal.
Few economic reports are due this week that would shed significant new light on the economy. The housing industry will be the most active in terms of planned information.
The National Association of Home Builders’ housing-market index for July is due later today, and government reports on housing starts and building permits will be released Wednesday.
The Conference Board will release its Leading Economic Index for June on Friday.