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? - 07 October 2020
Wells Fargo Economics & Financial Report / Oct 10, 2020
In the immediate fallout after the lockdowns in the early stages of this pandemic, there was a lot of discussion about the shape of the recovery.
This Week's State Of The Economy - What Is Ahead? - 09 September 2022
Wells Fargo Economics & Financial Report / Sep 10, 2022
The ISM services index came in stronger than expected, and the underlying details pointed to service sector resilience with business activity and new orders notching their highest reading this year.
This Week's State Of The Economy - What Is Ahead? - 01 October 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
Economic data this week indicated that the ongoing expansion still has some momentum despite some familiar headwinds, though this week\'s releases were largely overshadowed by a busy week on Capitol Hill.
This Week's State Of The Economy - What Is Ahead? - 17 April 2020
Wells Fargo Economics & Financial Report / Apr 18, 2020
Economic data from the early stages of the Great Shutdown have finally arrived, and they are as bad as feared. ‘Worst on record’ is about to become an all too common refrain in our commentary.
This Week's State Of The Economy - What Is Ahead? - 20 May 2022
Wells Fargo Economics & Financial Report / May 29, 2022
U.S. retail sales topped expectations in April, while industrial production also grew more rapidly than economists expected. Data on housing starts, home sales and homebuilder sentiment, however, showed tentative signs of cooling.
This Week's State Of The Economy - What Is Ahead? - 03 January 2020
Wells Fargo Economics & Financial Report / Jan 04, 2020
Markets were also pressured from the latest ISM manufacturing report, which signaled further deterioration in the sector with the index falling to its lowest level since 2009.
This Week's State Of The Economy - What Is Ahead? - 13 November 2020
Wells Fargo Economics & Financial Report / Nov 14, 2020
The combination of the election outcome and a workable vaccine boosted financial markets and set the background music for this week’s short list of indicators.
This Week's State Of The Economy - What Is Ahead? - 19 May 2023
Wells Fargo Economics & Financial Report / May 23, 2023
Economic data continue to suggest the U.S. economy is only gradually losing momentum. Consumers continue to spend, and industrial and housing activity are seeing some stabilization.
This Week's State Of The Economy - What Is Ahead? - 08 November 2019
Wells Fargo Economics & Financial Report / Nov 09, 2019
Optimism soared this week on hopes of a forthcoming trade deal, as equity markets hit all-time highs and the yield curve steepened.
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.
