with Brian Beaulieu


This week on Fed Watch, ITR Economics Chief Economist Brian Beaulieu provides an overview of the latest data on US Industrial Production, manufacturing, and more. How does the currently sluggish economy impact our expectations for interest rate decline toward the end of the year? Tune in to find out!

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Key Episode Takeaways

  • 0:33 – Overview of recently released economic data
  • 2:52 – Insight into potential interest rate decline at end of 2024
  • 3:47 – High wage inflation keeping interest rates elevated
  • 3:57 – Tune in to the July Executive Series Webinar with Brian and Alan Beaulieu

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Brian Beaulieu:
Hello, today’s June 21st, 2024. Thank you for joining me for this edition of FedWatch.

The data came out this week and it showed what we have been expecting. The economy is sluggish. Industrial production data came out and manufacturing, mining, utilities, none of it is doing well. The first two are essentially flat. We’re seeing a little bit of pickup in utility production. That’s not a big surprise, but it’s not exactly, it certainly isn’t strong. And manufacturing really is just getting a little bit weaker. That 3/12 rate change slipped to minus 0.5%. So we’re not seeing any momentum building in that sector.

Retail sales data came out and that didn’t look great either. The 3/12 potentially slipped into a phase C situation and at 2.9%, that’s the slowest quarterly rate of rise year over year that we’ve seen in eight months. 12/12 is at 3.3, not going in place fast, except maybe edging downward. And that’s a nominal dollar. So you back out the rate of inflation and we’re not seeing it much moving at all in retail sales.

Housing data came out. Single family housing starts data was not good. We saw our 1/12 drop to minus 2.8% for single family starts. And part of that was last year was so very strong, but it was also just a weaker than normal increase or change really from March to April. That stat for the month to month change at minus 6.2% was way below normal. So it was just a bad month for single family starts. But I thought maybe we’d see some better news in existing home sales, but that’s the overriding status there remains negative with the data trend in recession. All the rates of change are below zeros. So they’re nothing but negative numbers. We saw a step month to month change April to May that was weaker than median.

Overall, it’s very reminiscent of 2011, which was not a great year although it improved in the second half of the year. And that could very well be what we’re looking at here. We’d be consistent with that forecast. So what does all this mean for interest rates? Unless we see a significant change in wage inflation, which we are not anticipating, we’ll probably get that one decline in September, maybe another one toward the end of the year. Some more in the first half of 2005 remains on the table, but nothing great.

Our core rate of inflation as we forecast it for the personal consumption expenditures still gets low enough for the Fed to maneuver interest rates downward. Really, it’s gonna become interesting. Are they gonna look forward into 2005 when they start gauging monetary policy or are they gonna look at where we sit today? From our perspective, just to remind you, there’s a whole nother round of inflation coming out that is probably beginning late 2025 or certainly in 2026. So any drop we get at interest rates will be a respite. Grab them while you can because they’re going up and they’re going up significantly or appreciably higher, I should say significantly.

That’s the take on this week’s data. The economy is muddling right now more than anything, but wages are keeping interest rates high and we’re not likely to get a tremendous amount of relief. We have our July webinar coming up. Alan and I are gonna be talking about the next five years in much greater detail. I encourage you to go on our website, itreconomics.com and take a look at that information. It will give you a lot more detail on what we expect and when we expect it and what it all means. Thanks for joining us for this edition of Fed Watch.