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? - 28 June 2024
Wells Fargo Economics & Financial Report / Jul 04, 2024
According to the Federal Reserve\'s preferred gauge, core inflation cooled to its softest pace in more than three years in May against a backdrop of measured consumer spending and still-strong personal income.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
This Week's State Of The Economy - What Is Ahead? - 31 January 2025
Wells Fargo Economics & Financial Report / Feb 03, 2025
The U.S. economy is growing at a healthy clip. Real GDP expanded by 2.3% in the fourth quarter, bringing the annual growth rate to 2.8% in 2024. For context, the economy grew at an average annual rate of 2.4% during the 2010-2019 economic expansion.
This Week's State Of The Economy - What Is Ahead? - 25 March 2022
Wells Fargo Economics & Financial Report / Mar 27, 2022
The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week\'s durable goods report.
This Week's State Of The Economy - What Is Ahead? - 08 October 2021
Wells Fargo Economics & Financial Report / Oct 15, 2021
September\'s disappointing employment report clearly takes center stage over this week\'s other economic reports. Nonfarm employment rose by just 194,000 jobs, as employers continue to have trouble finding the workers they need.
This Week's State Of The Economy - What Is Ahead? - 26 April 2024
Wells Fargo Economics & Financial Report / Apr 29, 2024
We got our first look at Q1 GDP, which downshifted to a 1.6% annualized pace and was accompanied by a hot core PCE deflator reading.
This Week's State Of The Economy - What Is Ahead? - 17 May 2024
Wells Fargo Economics & Financial Report / May 23, 2024
The Producer Price Index (PPI) was a bit firm in April, rising 0.5% amid higher services prices, though it did come with slight downward revisions to prior month\'s data.
This Week's State Of The Economy - What Is Ahead? - 09 June 2023
Wells Fargo Economics & Financial Report / Jun 14, 2023
An unexpected spike in jobless claims is a sign that cracks are forming in the labor market. Higher mortgage rates look to be hindering a housing market rebound.
This Week's State Of The Economy - What Is Ahead? - 17 December 2021
Wells Fargo Economics & Financial Report / Dec 21, 2021
7 Interest Rate Watch for more detail. In other news, retail sales data disappointed as higher prices factor into spending and industrial activity continued to recover but remains beset by supply issues.
This Week's State Of The Economy - What Is Ahead? - 29 January 2021
Wells Fargo Economics & Financial Report / Feb 09, 2021
Economic data came in largely as expected this week and suggest continued economic recovery.
