Few say that summer in America is more than the 4th of July weekend.
And, as June wraps up this week, investors as well as economists will bid well for a second quarter that sees inflation raging and markets reeling.
Before that can happen, however, the week starting Monday will offer some final reminders of what the economy is like as the calendar shifts into the second half of a difficult and volatile year. hitherto.
First, the good news: After breaking the $5 a gallon mark, gas prices have dropped to a year-end high, with a nationwide average of $4.90 on Sunday, according to AAA. That bodes well for a weekend when former motorists hit the road in search of family barbecues, baseball games and fireworks.
“It’s going to be the most expensive 4th of July we’ve ever seen, but it’s about eight and a half cents a gallon less than it was just a few weeks ago,” said Patrick De Haan, Gas Buddy’s head of petroleum analysis. said in a video on the company’s website.
The good news, he said, is that prices are expected to continue falling “10 cents maybe up to 20 cents on July 4th.”
Political cartoon about economy
Rising energy costs, which have been exacerbated by Russia’s invasion of Ukraine, were a key component of the consumer price index’s recent peak 40 years ago. The CPI in May was 8.6% year on year.
Friday will bring another reading on inflation, the so-called personal consumption expenditures index, a metric that the Federal Reserve tracks closely.
The consensus estimate is that PCE grew at an annualized rate of 6.4% in May, compared with 6.3% in April. But the core index, which excludes energy and food costs, was pegged down to 4.8% from 4.9% a month earlier.
Any positive news would be welcomed by markets, which sparked a weekend rally after a few weeks of selling. Markets seem to be catching on to the Fed’s aggressive rate hike cycle and the possibility of a mild recession within the next 12 months or so.
“Our current assessment is that a recession occurring at some point in the next two years is more likely than not,” Wells Fargo economists wrote on Friday. “Even if the Fed doesn’t aggressively tighten policy, inflation is still happening at a rate not seen in 40 years, and consumers and businesses will ultimately respond to a higher-cost environment with a longer time horizon. tight time”.
Currently, consumer sentiment is at a record low, as measured by the University of Michigan’s consumer survey. Tuesday will bring another twist on consumer mood, when the Conference Board releases its survey for June. Estimates suggest it will fall from May’s 106.4, possibly even below the 100 mark.
As this week closes to the quarter, Wall Street faces some increased volatility as portfolio managers align their holdings to meet asset mix goals. And this week there will also be a meeting of the OPEC oil nations, where decisions will be made on production levels for August.
One area that analysts will be watching closely is the housing market, with pending home sales for May due to be reported on Monday. Contracts signed in April fell 3.9% for the sixth straight month and now stand at their lowest level in nearly a decade.
“By mid-2022, the real estate market is reflecting an economy that is reaching for post-pandemic reality,” said George Ratiu, director of economic research at Realtor.com.
“The frenzied rush to find homes and lock in historic low interest rates seen over the past two years has gone down in the history books,” he added. “With inflation eating deeper into consumer wages each month, and the Federal Reserve fully engaged in cooling prices, Americans’ ability to borrow is severely constrained. The result is a drop in housing demand, with more homeowners accepting the new normal and putting their homes up for sale.”
This has created a shift in the market, with many homes staying on the market longer and sellers having to lower prices, Ratiu said. “The return of these historic models is a welcome development for home shoppers who have been waiting for more expansive buying opportunities,” he added.
Also on tap next week is the final figure for gross domestic product for the first quarter, with expectations it will be flat from the 1.5% annual decline registered in the previous estimate.
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