Summer still sizzling before earnings and data deluge take center stage

Trend watch

Summer travel remains in full swing despite the sizzling summer temperatures. U.S. hotels have continued to get a boost from the World Cup, which is shifting to the “knockout” stage of the tournament. For the week ending July 4, revenue per available room (RevPAR)―a key hospitality metric―increased 55% on average on game day in the host cities for the 14 matches last week, according to Truist Securities Lodging analyst C. Patrick Scholes.

However, hotel occupancy fell to 63.5% from 72.2% in the prior week, although that’s typical as business travel dips around a holiday. Regardless, the World Cup has been a price story (RevPAR) for hoteliers rather than a big boost to occupancy, which has risen modestly.

Also, after several strong weeks, U.S. air passenger counts lost some altitude, dropping by more than 1 million to 18.1 million in the past 7-day period. Hereto, that’s the typical seasonal pattern in the week following the Independence Day holiday. If the historical pattern holds, air passenger traffic should surge in the next two weeks, peaking near the end of this month.

Our take

Second quarter earnings season kicks off next week along with a deluge of economic data. There will be several key reports for June, including the two main inflation gauges and retail sales as well as a raft of new housing data such as starts, permits, and pending sales. We anticipate that inflation should cool following the sharp drop in crude oil prices, helping squelch the rate hike drumbeat and pull interest rates lower.

Also, on deck for next week – Federal Reserve (Fed) Chairman Kevin Warsh will head to Capitol Hill for the semi-annual Congressional testimony. We expect that Warsh will focus his remarks on the five task forces reviewing key areas central to how the Fed conducts monetary policy, including Fed communications and the inflation frameworks.

Meanwhile, there are fresh concerns on the trade front. While the United States declined to auto-renew the U.S.-Mexico-Canada Agreement (USMCA) for another 16 years, the six-year-old trade pact is in need of updates such as regarding digital trade, agriculture, automotive supply chain rules, and labor rights. To be sure, the North American economy is deeply interconnected, making cross-border trade and integrated supply chains critical pillars for growth across all three countries. Thus, despite some headlines to the contrary, we expect that the USMCA differences will eventually get ironed out.

Additionally, the temporary Section 122 tariffs that the White House used to replace those struck down by the Supreme Court are set to expire in the last week of July. We don’t expect those tariffs will go away; instead, they will largely shift to Section 301 tariffs, which relate to unfair trade practices.

On the domestic front, consumers showed signs of becoming more cautious in May. Consumer credit unexpectedly declined following two months of strong gains, suggesting households pulled back on borrowing, which was likely in response to the surge in gasoline prices. While one month of data does not establish a trend, it does indicate that consumers remain very selective given an uncertain economic environment. Conversely, it may simply be that consumers took the opportunity to pay down debt amid that uncertainty.

Housing activity also remained under pressure. Existing home sales slumped in June as affordability challenges persisted. The combination of elevated prices, high financing costs, and limited inventory continues to limit transaction activity across much of the housing market.

The service sector, which accounts for the majority of economic activity, has largely been treading water since March. Encouragingly, inflation pressures eased as the prices-paid component of the ISM Services survey cooled sharply, offering a positive sign that cost pressures may be moderating.

Taken together, the incoming economic data points toward an economy that remains resilient but is clearly losing some momentum, with moderating inflation helping to offset pockets of weakness in consumer spending, housing, and service-sector activity.

Bottom line

The U.S. economy continues to chug along despite challenges such as gasoline prices and geopolitical uncertainty. A broad range of incoming economic data suggest moderating inflation alongside steady growth, albeit uneven, with the recent drop in energy prices offering some near-term relief to consumers. Yet, that unevenness maintains the feeling that the economy has “one foot on the gas, one foot on the brake.” Based on current conditions, we believe the bar remains high for a 2026 Fed rate hike.