Fed Minutes of July Meeting Show Consensus for Tapering This Year, Sending Markets Lower… The minutes from the last Federal Reserve meeting at the end of July showed a broad agreement among the bankers to start reducing their bond purchases this year if the economy continues to improve. The possibility of less liquidity spooked investors.
What it means— It’s all about money flow. With the Fed pumping $120 billion in new money into the financial markets each month, stocks and bonds have a nice tailwind. As that flow slows down, so will the tailwind, leaving investors to rely on old-fashioned things like earnings, revenue, the prospects for economic growth, and market-based price discovery. That makes people nervous, especially with equity markets at record highs. But things might not roll over so quickly. The Fed minutes were from a meeting that happened almost four weeks ago. In the age of COVID-19, that’s like a lifetime. With retail sales falling, home sales slowing, and other indicators showing a bit of weakness, the bankers are likely to dial back their statements after the Jackson Hole gathering of central bankers. Expect another week of volatility before Chair Powell’s statement tests the market’s reaction to proposed changes.
Retail Sales Slip 1.1% in July… Weak auto sales due to a computer chip shortage and falling e-commerce drove retail sales lower.
What it means— Meh, this isn’t that big of a deal… yet. While the drop was almost four times the 0.3% fall expected, it was mostly because of falling new car sales. Excluding autos, retail sales slipped just 0.4%, mostly on comparatively weak online shopping after big gains over the past year. As more Americans went outside and gathered with friends, we didn’t spend as much time surfing the net for the next great deal. Restaurant sales rose 1.7% – the fifth consecutive month of higher sales. Overall, retail sales are still 16% higher than this time last year. Whether we can keep up the pace in the holiday season without more relief spending from the federal government is a good question. If retail sales fall further as the delta variant makes its way through the population, the fall could be a rough season for the economy.
Housing Starts Fell 7% in July… June housing starts were revised upward to an annualized pace of 1.64 million units and July starts were expected to reach 1.65 million. Instead, starts fell to 1.53 million.
What it means— As the old saying goes, the cure for high prices is high prices. But this isn’t about home prices, it’s about input costs for builders. With lumber and labor prices soaring this spring, builders tried to tamp down the price increases by reducing demand, which means building fewer units. The move seems to have worked, as lumber prices are down by more than 66%. Fewer potential buyers are walking through model homes, but that’s likely because there aren’t many homes for sale. So far, builders haven’t passed along any savings on materials or labor to home buyers. If the housing market softens, it will show up as consistently lower new home sale prices. We’ll get numbers on that next week.
Biden Administration Increases SNAP Benefits by 25%… The administration revised the estimated food basket that a person would purchase each month. The new basket costs 25% more than the old basket. The change does not need congressional approval.
What it means— The change will add $20 billion to the annual bill for the supplemental nutritional assistance program (SNAP), formerly known as food stamps. It’s not as generous as it might sound. The move increases the amount each person on SNAP gets each month from $121 to $157, hardly enough to eat like a king. The increase also comes just as the 15% boost to SNAP during COVID is set to expire. Still, with 42 million people on SNAP, there’s a lot of money flowing to grocery stores and companies like Walmart, Target, and even Amazon through online grocery orders.
Beauty Contest Organizers Combat Illegal Botox Injections… for Camels… Organizers of the annual King Abdulaziz Camel Festival, which takes place about 90 miles northeast of the Saudi capital of Riyadh, are still trying to curtail illegal practices such as Botox injections.
Camel owners use the injections to plump the lips of camels and erase the lines on camel noses, but the injections can also lead to long-term health issues in the animals. Botox has been the scourge of the contest for years, and anyone caught using such tactics can be fined 100,000 Saudi riyals (about $25,000) per camel. Camel owners also have been known to use lip filler and surgical enhancements to improve the looks of their animals.
The committee responsible for compliance with the Botox ban and other infractions reports to the Saudi Camel Club, which is supervised by Saudi Crown Prince Mohammed Bin Salman. There is a reason camel owners go to such great lengths. The contest regularly draws more than 25,000 animals, and owners compete for more than $50 million in total prize money. Top winners can take home more than one million riyals.
Data supplied by HS Dent Research
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