Rates Rangebound After Powell’s Comments

Rates end mixed after Fed Chair Jerome Powell’s latest comments on the economic outlook

Treasury yields and swap rates were range bound Tuesday after Powell’s sobering comments on the continued threat of the delta variant and a mixed bag of economic data – the 10-year fell to an intraday low of 1.21% before closing flat at 1.26%.  Major US equity indices closed in the red – the S&P 500, DJIA, and Nasdaq declined 0.7%, 0.8%, and 0.9%, respectively.

Retail sales declined more than expected in July

Retail sales fell 1.1% last month (after rising by 0.7% in June), well below Bloomberg’s estimated 0.3% decrease.  According to the report, eight of the thirteen categories measured reported declines, with motor vehicles and parts, clothing, and non-store retailers experienced the biggest drops.  Price pressures were the main driver behind July’s decline, indicating a pickup in inflation could continue to curb sales in the coming months.

Industrial production increased 0.9% in July after rising only 0.2% in June

The manufacturing sector has generally been a bright spot during the recent economic recovery, and July’s industrial production data is no exception.  Manufacturing output grew by 1.4%, with the majority of the shift driven by a 11.2% increase in motor vehicles and parts production.  Despite the spike in production, the uptick in input costs and low inventory levels continue to limit output.  While total industrial production is up 6.6% from the year before, it remains 0.2% below pre-pandemic levels.

Powell believes COVID-19 is “still casting a shadow on economic activity”

During his town hall session held today with educators and students, Powell warned that the emergence of the delta variant continues to threaten the US economic recovery and said there’s no returning to the pre-pandemic economy.  He added, “with successive waves of Covid over the past year and some months now, there has tended to be less economic—less in the way of economic implications from each wave, and we will see whether that is the case with the Delta variety.”