Last week’s employment report offered a little bit of something for both doves and hawks speculating on the outcome of next week’s Fed meeting. An acceleration in hiring in August coupled with downward revisions to prior data left the door open to either a 25 bps or 50 bps cut in September. Inflation data out this week lent a bit more clarity.
The core Consumer Price Index (CPI) printed at 0.3% month-over-month in August. This was slightly higher than consensus forecasts and marked the fastest price increase in four months. Stubborn services prices were the culprit. Core services inflation notched its largest jump since April, advancing 0.4% over the month. Price pressures were widespread between non-housing and housing services, with the former boosted by a pickup in travel-related costs and the latter still lagging the slowdown in private sector rents. Although August’s inflationary burst was more likely a volatile pop than a trend shift, the sticky nature of price growth may prompt FOMC members to exercise a bit more caution on the way down. Our thoughts on next week’s Fed meeting are explained more fully in Interest Rate Watch. In sum, we acknowledge that a 50 bps cut is still a possibility for September; however, we now expect the committee to launch this easing cycle with a tamer 25 bps cut.
Despite August’s flare-up, there are plenty of reasons to believe that inflation remains on a downward path and that the Fed will be confident to continue easing past September. Deflation in the goods sector continues to temper overall price growth, with core goods prices outright declining on a monthly basis in 14 of the past 15 months. Food and energy inflation also remain benign, helping to bring headline CPI down to 2.5% year-over-year in August. Although not quite back to target, this print is more or less in line with price growth on the eve of the pandemic (2.3% in February 2020). Even core services prices appear set for a disinflationary run. Airfare and hotel prices tend to be some of the more volatile components of core services, and we maintain the view that shelter inflation should slow more materially in the months ahead.
A group of other indicators released this week foretell more inflation relief on the horizon. The producer price index, although a touch above expectations at 0.2% in August, continued to signal a moderation in price pressures. Furthermore, only a net 20% of small business owners surveyed by the National Federation of Independent Businesses (NFIB) reported raising their selling prices in August, the lowest share since January 2021. A larger share planned on raising prices over the next few months; however, this figure has dropped five points over the past year. Meanwhile, consumers are not anticipating a sharp rebound in price growth. Inflation expectations remain well-anchored, according to New York Fed and University of Michigan Surveys, which peg five-year-ahead inflation expectations at 2.8% and 3.1%, respectively.
This Week's State Of The Economy - What Is Ahead? - 11 September 2020
Wells Fargo Economics & Financial Report / Sep 14, 2020
In the holiday-shortened week, analysts’ attention remained on the progress of the labor market. Recent jobless claims data remain stubbornly high and point to a slowing jobs rebound.
This Week's State Of The Economy - What Is Ahead? - 22 January 2021
Wells Fargo Economics & Financial Report / Jan 23, 2021
Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%.
This Week's State Of The Economy - What Is Ahead? - 11 August 2023
Wells Fargo Economics & Financial Report / Aug 15, 2023
During July, both the headline and core Consumer Price Index (CPI) rose 0.2%. On a year-over-year basis, the core CPI was up 4.7% in July. Recent signs have been more encouraging, with core CPI running at a 3.1% three-month annualized pace.
This Week's State Of The Economy - What Is Ahead? - 06 December 2019
Wells Fargo Economics & Financial Report / Dec 07, 2019
The latest hiring data are an encouraging sign that the U.S. economy is withstanding the global slowdown and continued trade-related uncertainty.
This Week's State Of The Economy - What Is Ahead? - 01 December 2023
Wells Fargo Economics & Financial Report / Dec 05, 2023
U.S. data released this week indicates the economic expansion remains alive even as inflation continues to slow. The year-ago rates of headline and core PCE inflation were the lowest since March 2021 and April 2021, respectively.
This Week's State Of The Economy - What Is Ahead? - 21 April 2023
Wells Fargo Economics & Financial Report / Apr 26, 2023
The Leading Economic Index (“LEI”) continued to flash contraction as early signs of labor market weakening are starting to emerge. Meanwhile, a batch of housing data confirmed that a full-fledged housing market recovery is still far off.
This Week's State Of The Economy - What Is Ahead? - 28 October 2022
Wells Fargo Economics & Financial Report / Oct 31, 2022
Headline GDP continues to send mixed signals on the direction of the U.S. economy. During Q3, real GDP rose at a 2.6% annualized rate, ending the recent string of quarterly declines in growth registered in the first half of 2022.
This Week's State Of The Economy - What Is Ahead? - 30 August 2024
Wells Fargo Economics & Financial Report / Sep 04, 2024
Revisions to PCE were broad based across the goods and services components and make it less clear that the restrictive interest rate environment is poising a major impediment to household spending.
This Week's State Of The Economy - What Is Ahead? - 18 September 2020
Wells Fargo Economics & Financial Report / Sep 15, 2020
The details were generally more favorable. The retail sectors hurt most by the pandemic saw gains in August, factory output is growing and soaring homebuilder confidence suggests soft construction data this week may be transitory.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
