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? - 10 July 2020
Wells Fargo Economics & Financial Report / Jul 13, 2020
The ISM non-manufacturing index jumped 11.7 points to 57.1, reflecting the broadening re-opening of the economy.
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? - 13 December 2024
Wells Fargo Economics & Financial Report / Dec 16, 2024
Prices were in focus this week with reports delivering the last key data before the FOMC\'s next meeting on December 17-18. The November readings on consumer and producer prices suggested that overall inflation remains stubbornly high.
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? - 14 April 2023
Wells Fargo Economics & Financial Report / Apr 20, 2023
In March retail sales fell 1.0%, manufacturing production slipped 0.5% and the consumer price index rose a modest 0.1%.
This Week's State Of The Economy - What Is Ahead? - 10 September 2020
Wells Fargo Economics & Financial Report / Sep 12, 2020
Although the recovery from the COVID recession is still far from over, the U.S. economy is bouncing back faster than many expected.
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? - 14 October 2020
Wells Fargo Economics & Financial Report / Oct 14, 2020
The global mobility playing field is equalizing. Major European countries such as Germany and France have seen a slowdown in recent weeks, leaving them right in line with the United States relative to the January baseline.
This Week's State Of The Economy - What Is Ahead? - 24 March 2023
Wells Fargo Economics & Financial Report / Mar 29, 2023
The FOMC hiked the federal funds rate by 25 bps on Wednesday amid continued strength in the labor market and elevated inflation.
This Week's State Of The Economy - What Is Ahead? - 07 October 2022
Wells Fargo Economics & Financial Report / Oct 10, 2022
higher interest rates and inflation appear to be weighing on manufacturing and construction, yet service sector activity remains fairly resilient.
