The economic calendar was packed this week. A quick look across the board suggests recession jitters may be overdone. Inflation continues its gradual descent, and business optimism has trended higher amid cooler input price growth and steady consumer spending. While the growth picture appears solid, it is unlikely to settle the debate on the degree of monetary policy easing this year until we get more clarity on the labor market with next week's preliminary payroll benchmark revision and August's jobs report.
Consumer prices increased 0.2% in July, in line with expectations. The modest monthly gain was underpinned by restrained food and energy inflation. Most of the increase was thus driven by core services, specifically a stronger-than-expected rise in shelter prices. Core goods continued on their deflationary path, slipping 0.3%, and were pulled down by a large drop in used vehicles prices. The outturn led the headline CPI to tick down a tenth to 2.9% on a year-over-year basis in July, which is the first time that inflation has fallen below 3% since March 2021.
Inflation's downward trajectory has provided relief to small businesses. The NFIB Small Business Optimism Index rose for the fourth straight month to 93.7 in July, or its highest since early 2022. Price growth remains a top problem for small business owners, but improving sales expectations have supported plans to expand inventories. Separate data on retail sales show those expectations are not unwarranted—spending at retail stores and food service places rose a better-than-expected 1.0% in July. The sales pop poses some upside risk to our current forecast of a 2.3% annualized rise in real personal consumption expenditures in the third quarter.
Despite the ongoing strength in consumption, manufacturing remains in the doldrums as solid imports have likely stepped in to fulfill consumer goods demand. Industrial production contracted 0.6% in July. The details point to weakness in motor vehicle & parts manufacturing and utilities production as key drivers of the headline decline, but the environment for capital expenditures remains challenging. Uncertainty around the timing and degree of monetary policy easing and the results of the U.S. presidential election have fostered little incentive for firms to take on major projects today.
A similar dynamic is playing out in residential construction. Housing starts posted a sharp 6.8% decline in July. Applications for building permits, a leading indicator of home construction, also slipped 4.0% over the month. The broad contraction points to a deferment mindset among home builders and manufacturers alike. As written in Interest Rate Watch, we will be looking for clues on the path of monetary policy this year and next in Chair Powell's speech at the annual Economic Policy Symposium at Jackson Hole on August 23.
This Week's State Of The Economy - What Is Ahead? - 27 August 2021
Wells Fargo Economics & Financial Report / Aug 30, 2021
In other economic news, output continues to ramp up across the U.S., even as the resurgence in COVID cases is leading to some pullback in consumer engagement.
This Week's State Of The Economy - What Is Ahead? - 25 September 2020
Wells Fargo Economics & Financial Report / Sep 28, 2020
Existing home sales rose 2.4% to a 6.0-million unit annual pace. The surge in sales further depleted inventories and pushed prices sharply higher.
This Week's State Of The Economy - What Is Ahead? - 09 April 2021
Wells Fargo Economics & Financial Report / Apr 10, 2021
This week\'s economic data kicked of with a bang. The ISM Services Index jumped more than eight points to 63.7, signaling the fastest pace of expansion in the index\'s 24-year history.
This Week's State Of The Economy - What Is Ahead? - 18 October 2019
Wells Fargo Economics & Financial Report / Oct 19, 2019
Personal consumption is still on track for a solid Q3, but retail sales declined in September for the first time in seven months.
This Week's State Of The Economy - What Is Ahead? - 02 June 2023
Wells Fargo Economics & Financial Report / Jun 06, 2023
This week, Congress and the president prevented what would have been the first default in U.S. history by agreeing to suspend the debt ceiling through the end of 2024.
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? - 24 January 2020
Wells Fargo Economics & Financial Report / Jan 25, 2020
Fears of an escalating coronavirus outbreak reached the United States this week, as a Washington state man became the first confirmed domestic case and the international total reached more than 800.
This Week's State Of The Economy - What Is Ahead? - 03 March 2023
Wells Fargo Economics & Financial Report / Mar 07, 2023
Looking at Q4 GDP, Australia\'s economy grew by less than expected, GDP was flat for the quarter in both Canada and Switzerland, and Sweden\'s economy contracted in the final quarter of last year.
August 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Aug 22, 2020
Downstream involves the refining and processing of oil and natural gas into fuels, chemicals, and plastics. All three sectors are well-represented in Houston.
This Week's State Of The Economy - What Is Ahead? - 20 November 2020
Wells Fargo Economics & Financial Report / Nov 24, 2020
The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.
