KEY DATA: Confidence: +5.6 points: GDP: +1.1% (up from 0.8%); National Home Prices: +0.1%; Year-over-Year: +5%

IN A NUTSHELL: “When the dust settles on Brexit, it will be consumer spending that will determine the course of the U.S. economy and we need to wait a while before we know what consumers are thinking.”

WHAT IT MEANS: The news is all about Brexit and while the uncertainty it has created will likely dominate discussions for a while, ultimately, the U.S, economy will rise and fall on its ability to withstand whatever shocks may come. I don’t think the impact on the real economy will be great, even if the financial economy takes some hits. Where there could be some fallout is with consumer confidence if the equity markets don’t bounce back quickly. The Conference Board’s reading of household confidence jumped sharply in June as expectations of the future as well as views of current conditions increased solidly. Respondents’ views on business conditions were positive and they expect the labor market to get better going forward. This report, though, is in contrast with the University of Michigan’s June Consumer Sentiment Index, which fell. It also came before the Brexit impacts on the markets could be determined. So, let’s wait a little while before we say that consumers are feeling good enough to keep spending.

There wasn’t a lot of growth at the end of last year and the first part of this year. Yes, first quarter GDP was revised upward again, to a more palatable but not very strong 1.1% from the previous 0.8% estimate. There were two good bits of news in the report. Business investment in software and research and development rose rather than declined and despite the strong dollar, exports expanded instead of declining.

Home prices continued to rise in April. The S&P/Case-Shiller seasonally adjusted national index edged upward but the increase over the year moderated. Two of the twenty largest metropolitan areas, San Francisco and Seattle, covered reported declines over the month. However, these areas had experiencing surging prices, so a modest drop is not a major surprise.

MARKETS AND FED POLICY IMPLICATIONS: Until we get some “major” data, such as the June employment numbers on July 8^th, the markets will probably continue to be obsessed with the Brexit issue. Of course, since no one really has a good handle on what will happen, it is the uncertainty, not the reality, that will drive market reactions. In terms of importance, the United Kingdom is the fifth largest national recipient of our exports, or about 3.7%. Thus, what happens to the British economy matters, but not greatly given that our exports to the UK in 2.015 of $56.4 billion represented only 0.3% of total GDP. The real concern is what this means for the European Union. Exports to the EU were five times greater than to the UK and that is why there is uncertainty. No one knows if this is a one-off issue or if other nations will follow. I can’t see that happening, but I didn’t see Brexit either. For the Fed, the whole Brexit issue reinforces the argument that the FOMC needs some weapons in its arsenal if it is to be in position to deal with the periodic shocks that crop up. Right now, the best the Fed can do is nothing. Doesn’t that say it all?