Robust consumer spending has helped to cushion the blow on the economy from an inventory correction and the prolonged drag from lower oil prices that have restricted GDP growth to an average 1.0% annualized rate in the last three quarters. Friday's data suggested consumer spending was cooling after the second quarter's brisk 4.2% rate of increase.
Following the retail sales report, the Atlanta Fed lowered its third-quarter GDP growth estimate by two-tenths of a percentage point to a 3.5% rate.
Separately, the Labor Department said its producer price index for final demand dropped 0.4% last month, the first decline since March and the largest since September 2015. It increased 0.5% in June. A strong dollar and cheaper oil continue to keep price pressures muted, leaving running persistently below the Fed's 2% target.
A third report showed consumer sentiment was stable in early August, though households' views on income softened a bit. Most of the weakness was among younger households who cited higher expenses than anticipated, according to the University of Michigan's preliminary consumer sentiment survey.
A fourth report from the Commerce Department showed businesses made significant progress in June in their efforts to reduce an inventory overhang that has weighed on economic growth since the second quarter of 2015. Inventories increased 0.2% after a similar gain in May. Sales shot up 1.2% in June, the largest rise since February 2013 , after rising 0.3% in May. At June's sales pace, it would take 1.39 months for businesses to clear shelves. That was the fewest number of months since November 2015 and down from 1.40 months in May. An outright drop in inventory investment cut almost 1.2 percentage points from GDP growth in the second quarter, limiting the rise in output to an anemic 1.2% annual rate.
Interest rate after Friday's data placed only a 43% probability of a December rate hike, compared to 47% before the data. We expect a hike in December.
We keep our EUR/USD strategy unchanged. We are still looking to buy this pair near 14-day .
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