With crosscurrents increasing uncertainties to the baseline economic outlook, Federal Reserve Board Chair Jerome Powell acknowledged that “many” Federal Open Market Committee members see a “strengthened” case for lowering rates.
Powell spoke after reports Tuesday showed consumer confidence slipping and home sales declining.
The outlook is “favorable,” Powell told the Council on Foreign Relations, according to prepared text released by the Fed which mirrored statements he made after the FOMC meeting last week. The situation is being monitored and the panel “will act as appropriate” to keep the expansion going.
“The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” he said. He warned against overreacting “to any individual data point or short-term swing in sentiment,” because “doing so would risk adding even more uncertainty to the outlook.”
Trade issues are weighing on business and have played a role in the recent decline in “business confidence in some recent surveys and may be starting to show through to incoming data,” Powell said, pointing to slower business investment.
Consumer confidence tumbled in June, falling to 121.5 from a revised 131.3 in May, the Conference Board reported Tuesday. The present situation index fell to 162.6 from 170.7, while the expectations index dropped to 94.1 from 105.0.
The confidence index was at its lowest since September 2017, when it was 120.6. “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers' confidence,” said Lynn Franco, senior director of economic indicators at the Board. And while the index remains at a historically high level, she said, “continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”
Manufacturing
The Federal Reserve Bank of Richmond reported manufacturing activity dipped, with its composite index slipping to 3 in June from 5 in May, as employment activity decreased.
“Most firms reported some improvement in local business conditions, and they were optimistic that they would see growth in the next six months,” according to the report.
Services
The Bank’s service sector survey saw improvement in June, with the revenues index growing to 17 in June from 1 in May. “Respondents were optimistic that growth would continue in the coming months,” the report said, though respondents said the difficulty in finding skilled workers persists.
The Federal Reserve Bank of Philadelphia’s June Nonmanufacturing Business Outlook Survey’s general activity index fell for the second month in a row, to 12.2 in June from 28.1 in May, while sales/revenues were off for the third consecutive period. “The respondents continued to anticipate growth over the next six months, although the future indicators are at lower levels than in recent months,” the survey said.
The Federal Reserve Bank of Dallas reported the service sector picked up in June, with the revenue index rising to 13.6 in June from 2.7 in May. Employment was steady, as was the outlook uncertainty index, while wage pressures eased and price pressures grew a bit.
Housing
Sales of new single‐family homes decline 7.8% in May to a seasonally adjusted annual rate of 626,000, according to data released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index rose 3.5% in April on an annual basis, after a 3.7% rise in March.
