Few things say summer in America more than the July 4 weekend.
And, as the month of June winds down this week, investors and economists alike will bid good riddance to a second quarter that saw inflation rage and the markets swoon.
But, before that can happen, the week beginning Monday will offer up some last reminders of how the economy fared as the calendar turns to the second half of what so far has been a difficult and volatile year.
First, the good news: After breaching the $5 a gallon mark, gas prices have come off their highs of late, with the national average at $4.90 on Sunday, according to AAA. That bodes well for a weekend when motorists historically hit the roads in search of family barbecues, baseball games and fireworks.
“It’s going to be the most expensive July 4th we’ve ever seen, but prices are about 8 1/2 cents a gallon below where they were just a couple of weeks ago,” Gas Buddy’s head of petroleum analysis Patrick De Haan said in a video on the company’s website.
The good news, he said, was that prices are expected to continue to decline “10 cents to maybe as much as 20 cents by July 4.”
Political Cartoons on the Economy
The rising cost of energy, which has been exacerbated by the Russian invasion of Ukraine, has been a key component of the consumer price index reaching levels last seen 40 years ago. The CPI in May was 8.6% annualized.
Friday will bring another reading on inflation, the so-called personal consumption expenditures index, a measure that the Federal Reserve monitors closely.
Consensus estimates are for the PCE to have risen at an annual rate of 6.4% in May, compared to 6.3% in April. But the core index, excluding energy and food costs, is pegged to dip to 4.8% from 4.9% a month earlier.
Any positive news will be welcomed by the markets, which staged a late-week rally following a couple of weeks of selling. The markets appear to be coming to grips with the Fed’s aggressive round of interest rate hikes and the possibility of a mild recession within the next 12 months or so.
“Our current assessment is that an economic downturn occurring at some point over the next two years is more likely than not,” Wells Fargo economists wrote on Friday. “Even if the Fed was not aggressively tightening policy, inflation is running at a pace not seen in 40 years, and eventually consumers and businesses will respond to the higher cost environment with a period of belt-tightening.”
Already, consumer sentiment is at record low levels, as measured by the University of Michigan survey of consumers. Tuesday will bring another take on the mood of consumers, when the Conference Board releases its survey for June. Estimates call for it to fall from the 106.4 level of May, possibly even below the 100 mark.
As the week brings an end to the quarter, Wall Street faces some added volatility as portfolio managers juggle their holdings to meet asset mix targets. And the week will also feature a meeting of OPEC oil nations where decisions will be made about output levels for August.
One area analysts will be watching closely is the housing market, with pending home sales for May being reported on Monday. In April, contract signings fell by 3.9% for the sixth consecutive month in a row and now stand at the lowest level in nearly a decade.
“At the midpoint of 2022, real estate markets are mirroring an economy reaching for its post-pandemic reality,” George Ratiu, manager of economic research for Realtor.com, said on Sunday.
“The frenzied rush to find a home and lock-in historically low interest rates seen during the past two-plus years has been relegated to the history books,” he added. “With inflation taking a bigger bite out of consumers’ paychecks each month and the Federal Reserve fully engaged in cooling the heat on prices, Americans’ ability to borrow is being sharply curtailed. The result is softening housing demand, which comes at the same time as many homeowners are embracing the new normal and listing their homes for sale.”
This has brought about a shift in the market, with more homes staying on the market longer and sellers resorting to price cuts, Ratiu said. “The return of these historical patterns is a welcome development for home shoppers who have been waiting for the window of buying opportunities to open wider,” he added.
Also on tap next week is a final reading on gross domestic product for the first quarter, with expectations it will be unchanged from the 1.5% annual decline registered in the prior estimate.