Quite frankly, it is a difficult call to make based on what we know today. Current economic data is soft but financial conditions are still easy, which could result in a rebound in activity in the months ahead. For now, Fed officials have good reason to talk tough given a rebound in the capital markets will work against the 175 basis points in tightening to date. Sales were weak across the board, with auto sales and building material sales particularly weak. The CPI is not expected to be quite as well behaved in coming months given the increase in gasoline costs, but the core CPI is expected to remain quiescent, taking the pressure off the Fed to increase interest rates.
Inventories continue to be at very low levels.
Some inventory rebuilding is expected to take place in coming quarters despite slower sales growth. Initial unemployment claims dropped 16,000 to 296,000 for the week ending June 10th. The four-week moving average rose to 295,750. Jobless claims have been drifting higher in recent weeks, suggesting slightly slower employment growth in the months ahead. Technology production led the way.