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Ahh the benefits of an easy schedule.  I have repeatedly stood by the statement, 10 under 500 or 10 behind and you are out of the pennant race in Baseball.  Yes there have been teams that have collapsed after having a 10 game lead, the 1964 Phillies for one.  Back in the 50’s the Dodgers snatched defeat from the jaws of victory in 51, losing in a one game playoff when Bobby Thompson provided a walk off homer to move the Giants to the World Series.  This year it appeared that the American League Central was wrapped up early.  However the Twins are fading and likely this week will move into 2nd place.  They feasted on the Orioles, Royals and Tigers through early June before hitting some tougher teams.  Since mid June they have a losing record.  While until recently they had not lost three games in a row, it now seems almost impossible for them to win two in a row.  Worse, they have hit the part of their schedule where they will face some of the toughest teams, this week the Yankees come to town.  At the same time the Indians are bullying the Royals and this week the Blue Jays, stealing lunch money from the weaker teams.  This may not be the historic collapse of other memorable teams, but unless the Twins cinch up their belts, start hitting with men on base and find a reliever that can shut down the opposition in the later innings, they will have a lot of free time come October.

Happy Prime Day-After.  The artificial so called spending holiday fabricated by Prime and other on line providers will have an impact on overall retail sales in the month of July.  The issue will be how badly will this have hurt bricks and mortar retailers.  The headlines read that shoppers saved over a Billion Dollars on deals. (Personally I saved even more since I did not buy anything).  Prime buyers actually spent more during this event than they did last Black Friday and Cyber Monday combined.  This will undoubtedly have a major impact on the economy.  What remains to be seen is if it created a vacuum to pull sales from later in this quarter, read August / September or if the purchases were items of desire and not want that buyers had been waiting for.  To answer this we have to wait and see.  What is known is that there is no massive holiday coming up so the spending was unlikely to be for gifts. It is known that some Prime Venders such as Chewy cut prices on their pet food so that undoubtedly will lead to some sales flow from August/Sept to July. 

For June Retail sales were up .4% and when you take out autos, the number remained at .4% which indicates that transportation area is at least keeping pace with retail overall. 

Industrial production in June was at 0% growth, this corresponds to the ISM and other manufacturing reports that reflect weakness in the market.  US Capacity Utilization dropped to 77.9% so companies have the runway to handle a rise in sales and production when it comes.  That continues to be good news on the inflation front, unless you are the Fed and have a target of 2% inflation.  That is going to be difficult to achieve outside of a supply shock on a key commodity. 

An unexpected but great sign is the July Fed Manufacturing Indexes.  Both the New York Empire index and the Philadelphia Index took nice jumps over the June numbers which were brutal.  In both indexes new orders and shipments increased faster than expectations.  For the first time in a couple of months the respondents are indicating optimism about the next six months.  Outside of the consumer spending there is the continued strength of our exports which is interesting. The dollar remains very strong making exports more expensive to our trading partners.  That does not seem to be having much impact as exports continue to perform ok in spite of the tariffs and the strong dollar.  While the economic growth is slowing a bit the expectation is that that growth decline might bottom out shortly, avoiding, at least for now a recession bias. 

Oil is not responding to any political issues related to Iran.  Iran appears to be trying to set up some sort of incident where the outcome would create a supply shock to the world market.  However, attacking the UK by taking a ship only emboldens Europe to stick to the sanctions to punish Iran for its nuclear ambitions.  Worse for Iran, oil from Iran continues to pile up in China ports.  China purchased more than a million barrels of Iranian oil last month.  China is by far the largest importer of oil in the world, in spite of a sputtering economy.  China is retaliating against the US by cutting its purchases of oil from us and instead flouting the sanctions and buying from Iran.  If Iran is able to create an international incident where oil prices spike upward it will be curious to see who may be hurt worse, the US who is by far the largest consumer or China who is reliant on imports.  For now industry experts are not concerned as supplies world wide are starting to rise.  Demand is steady, not falling, but production continues to grow.  The expectation is that in 2020 there will be a growing glut of supply and lower prices. 

And with that the debate continues as to whether a rate cut is needed or not.  The markets have baked in at least a ¼ % rate cut and likely have hopes for a full ½%.  A quarter would have limited economic impact if any right now.  A half point would at least get the yield curve somewhat more balanced and maybe incite some economic activity.  It would help companies that are marginal with high levels of debt, giving them a slight cash flow breather.  But for the most part even a ½% rate cut would have a limited impact.  If the powers that be want the economy to grow faster, fiscal policy is the way to do it.  Let’s see what happens on July 31.

Have a great week.



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