Macroeconomic data released this week reveal that gradually easing price pressures are promoting consumer resilience, while high financing costs continue to bite producers. The Consumer Price Index (CPI) rose just 0.1% in November, amounting to a 3.1% year-to-year upswing. The headline print was muted by a downdraft in gasoline prices and ongoing moderation in food costs. In contrast, firmer services prices continue to prop up core inflation. A 0.3% monthly uptick in core prices translated to a 4.0% annual gain in November, unchanged from October’s rate.
Despite core CPI seemingly stuck at double the Fed’s inflation target, there are encouraging signs of more progress to come. A recent streak of softer prints brought the three-month annualized core rate to 3.4% through November, suggesting that disinflation has more room to run in the coming months. Gradually cooling labor costs should also help to keep a lid on services inflation, while stalling wholesale prices reduce the risk of price reacceleration. That said, price pressures have not completely abated. This week, we also received the latest NFIB Small Business Economic Trends Survey. In November, the net share of small businesses expecting to raise prices in the coming months reached its highest reading in one year (34%), consistent with a bump in plans to raise compensation.
Nevertheless, inflation expectations are adjusting lower. A survey from the New York Fed found that consumers anticipate a 3.4% annual increase in prices over the next year, the softest expectation since April 2021. A solid string of slower inflation readings also led FOMC members to take down their own forecasts, supporting their decision to hold rates steady for the third straight meeting in December. In the latest Summary of Economic Projections (SEP), the median FOMC participant expected core PCE inflation to print at 3.2% this year, down from 3.7% in the September SEP. These adjustments give a nod to ongoing progress on inflation, while acknowledging that price growth is likely to proceed above target. See Interest Rate Watch for more insight into how these developments affect our outlook for Federal Reserve policy.
Receding inflation appears to be bolstering consumer staying power. Retail sales rose 0.3% in November, outshining expectations of a slight decline. Based on our estimates, sales mounted a more impressive 0.9% increase on an inflation-adjusted basis, the fastest pace since last January. In addition to demonstrating enduring consumer resilience, November’s print also signals a solid holiday shopping season this year. Holiday sales are now on track to grow just under 5.0% on an annual basis. If realized, this spending pace would be a downshift from post-pandemic norms while still remaining above the longer-term average. Finally, a 0.9% real increase in control group sales in November set up GDP to advance a touch faster than we currently expect in Q4.
This Week's State Of The Economy - What Is Ahead? - 17 June 2022
Wells Fargo Economics & Financial Report / Jun 20, 2022
After last week\'s stronger-than-expected CPI, less surprising was the 75 point rate increase put forth by the Fed.
This Week's State Of The Economy - What Is Ahead? - 16 August 2019
Wells Fargo Economics & Financial Report / Aug 17, 2019
Markets gyrated this week as the spread between the ten- and two-year Treasury\'s turned negative for the first time since 2007. Financial markets seem to expect that the sharp slowdown in growth overseas will soon spread to the United States.
This Week's State Of The Economy - What Is Ahead? - 20 October 2023
Wells Fargo Economics & Financial Report / Oct 27, 2023
Treasury yields surged this week due to strong economic activity, impacting expectations for longer-term rates. New home sales led to a rise in single-family permits, but spiking mortgage rates are testing builder affordability strategies.
This Week's State Of The Economy - What Is Ahead? - 04 August 2023
Wells Fargo Economics & Financial Report / Aug 09, 2023
Employment growth was broad-based, though reliant on a 87K gain in health care & social assistance. Modest gains from construction, financial activities and hospitality also contributed to private sector job growth.
This Week's State Of The Economy - What Is Ahead? - 21 October 2022
Wells Fargo Economics & Financial Report / Oct 25, 2022
The real estate sector has been significantly affected by rising interest rates, with total housing starts falling 8.1% in September. Peering ahead, the forward-looking Leading Economic Index points to a recession in the coming year.
This Week's State Of The Economy - What Is Ahead? - 21 June 2024
Wells Fargo Economics & Financial Report / Jun 25, 2024
Retail sales rose just 0.1% over the month, falling short of consensus and suggesting that consumers may finally be feeling some spending fatigue.
This Week's State Of The Economy - What Is Ahead? - 10 September 2021
Wells Fargo Economics & Financial Report / Sep 13, 2021
Data from the opening weekend of College Football indicates that we will have to endure another season of Nick Saban deification.
This Week's State Of The Economy - What Is Ahead? - 12 February 2021
Wells Fargo Economics & Financial Report / Feb 19, 2021
Market attention was concentrated on the January consumer price data, as inflation has come back into focus.
This Week's State Of The Economy - What Is Ahead? - 22 May 2020
Wells Fargo Economics & Financial Report / May 25, 2020
The re-opening of the country is getting underway, with all 50 states starting to roll back restrictions.
This Week's State Of The Economy - What Is Ahead? - 14 January 2022
Wells Fargo Economics & Financial Report / Jan 18, 2022
As you may have already seen, inflation is running almost as hot as the stock of our favorite bank. The Consumer Price Index (CPI) rose 7.0% year-over-year in December, the fastest increase in nearly 40 years.