Economist's Commentary: July 15, 2008

Quick Take on the Economy: July 15, 2008

By Lawrence Yun, NAR Chief Economist

The government data on monthly retail sales showed a very small increase of 0.1 percent in June due to weakness in auto sales.
Minus autos, the sales rose a solid 0.8 percent in one month. The tax rebate checks have helped lift consumer spending and economic juice into the system, though it will be only a temporary boost.
Over a 12 month time span, overall sales rose 3 percent. Not including autos, sales were up 6 percent.
Due to the soft housing market, sales at furniture shops fell 5 percent and fell 1.5 percent at building material and garden dealers.
Retail sales are expected to weaken overall by the fourth quarter once the impact of the rebate checks fades away. The fourth quarter GDP is where we might see an outright contraction.

The prices paid by companies rose 1.8 percent in June. The very high single-month inflation follows the prior month's uncomfortable rise of 1.4 percent.
Prices are up 9.2 percent from a year before. This is reminiscent of the stagflation conditions in the late 1970s when prices were rising at double-digit pace accompanied by a very slow growing economy.
The producer prices do not directly lead to proportionate rise in consumer prices. Many consumer goods are service costs, which is not part of producer prices. Nonetheless, consumer prices will also get nudged up as a result in upcoming months.
The Fed will absolutely not consider cutting interest rates in this rising inflationary environment no matter what happens to the economy over the short course.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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