Retail Sales
Total retail sales rose 0.1% in June, after falling 0.1% in May. Gains were spread across a few retail categories, including building materials (1.3%), motor vehicles and parts (0.8%), and clothing and clothing accessories (0.7%). The largest decline came from gas stations (-1.3%), followed by furniture and home furnishings (-0.8%) and sporting goods, hobby, etc. (-0.7%). Sales are 8.1% above their year-ago level. Core sales, net of building materials, gas stations, and motor vehicle sales were up slightly by 0.1%. The trend in core retail sales is consistent with slightly weaker personal consumption expenditures in the second quarter.

International Trade Balance
The U.S. trade deficit in goods and services widened to -$50.2 billion from $43.6 billion in April. Exports fell 0.5% to $174.9 billion and imports rose 2.6% to $225.1 billion. Some of the slowdown in imports was due to a reduction from Japan, which we expect to increase again in coming months. The trade deficit in goods widened to -$64.9 billion and the trade surplus in services increased to $14.9 billion in May. The increase in imports reflected a rise in petroleum products and an increase in imports from Japan, suggesting the supply disruptions are on the wane. We expect the pace of exports to pick up as well in coming months.

Industrial Production
Industrial production increased 0.2% in June following a 0.1% decline in May. The gains were mixed with motor vehicles and business equipment dragging down growth and other areas of manufacturing, utilities, and mining making up the slack. Production in manufacturing industries was unchanged in June following a minor increase of 0.1% in May. Motor vehicle sales, a component of manufacturing, were down 2.0%, following May’s decline of 0.3%. Utilities rose 0.9% following a decrease of 2.o% in the previous month. Finally, mining rose 0.5% after growing 0.7% in May. Capacity utilization, which has gradually improved over the past year, remained unchanged in June at 76.7%. Production recovered a bit after a couple of challenging months characterized by high oil prices and uncertainty in global production networks following the earthquakes and tsunami in Japan.

Consumer Price Index
The consumer price index fell 0.2% in June after rising 0.2% in May. The slowdown in headline inflation was driven by slower growth in food and a significant decline in energy prices. Energy prices fell 4.4% after falling 1.0% in May. Food prices increased 0.2%, down from 0.4% in May. Over the year the CPI is up 3.4%. Core prices, net of food and energy prices increased 0.3% in June and are up 1.6% over the year. The pace of growth in food prices has gradually slowed since March and energy prices have slowed dramatically as well. At the same time, core prices have increased over the past few months, although the pace has been more gradual. We expect further price increases over the next few months as the economy regains some momentum.