U.S. Economy This Week: Outside Forces Causing Worry
Unsettled domestic and international situations undermine economic growth. The week's events illustrate the need for order, writes Ph.D. economist Robert Genetski.
Guest post by economist Robert Genetski, Ph.D.
Unlock exclusive financial insights and expert analysis to navigate market trends and make informed investment decisions: subscribe@classicalprinciples.com.
Riots in the United States, the war in Ukraine, and the threat of U.S. involvement in the Iran-Israeli war (which came true on Saturday), and ongoing uncertainties over tariffs and the One Big Beautiful Bill (OBBB), gave investors more than enough reasons to pause in the past week.
The only significant economic news was a sharp decline in retail sales. However, retail sales data are notoriously unreliable, so the decline has little impact on financial markets.
On the positive side, the Senate produced its version of the OBBB, raising the odds Trump will get it passed.
Another positive sign is the decline in longer-term interest rates. As the chart above shows, longer-term rates have moved at or below their 50-day moving averages. This often signals a downward pressure on interest rates.
May retail sales fell by 0.9 percent. The decline was steep enough that sales were up only 3 percent from a year ago and were unchanged from late 2024. While we had anticipated a weak number, the decline was steeper than we expected
In yet another sign of weakness, the June Homebuilders’ survey fell to 32 from 33, the third-lowest reading since 2012.
On Monday, S&P will report its advance business survey for early June. Their May survey reported the economy was moving ahead at a good pace. This conflicted with an alternative ISM survey which showed the economy in trouble. The June survey may shed some light on this conflict.
Thursday’s report on new orders for durable goods might give insight into the extent to which tariffs are or are not impacting business decisions. Orders were up in March and down in April, so the May report should help provide a better picture of the underlying trend.
Friday’s report on consumer spending, incomes, and inflation will be the most significant report of the week. It will provide the most comprehensive picture of where the economy was in the middle of the second quarter. This will help to clear up at least some of the conflicts that appear in other data.
Consumer spending and personal incomes have risen sharply in recent months. We expect spending and incomes in May to prove to have been weak, with little if any growth. Inflation also is expected to be low, with most forecasters expecting increases of only 0 percent to 0.1 percent.