Last week, we witnessed some interesting developments in the US economy. Let’s dive into the insights and highlights from the September 11-15th economic data.
The headline news revolved around the Consumer Price Index (CPI) Data. With energy costs soaring in August, the headline CPI increased to 3.67% year over year. However, the Core CPI, which excludes volatile food and energy components, declined to 4.35% year over year.
Inflation Surpasses Fed Targets, Energy Prices Impact PPI
Upon closer examination, we discovered certain areas persistently showing signs of inflation well above the Federal Reserve’s 2% target. Both CPI Housing and CPI Services experienced inflation rates more than 2.5 times higher than the Fed’s target. We also noticed an acceleration in the inflation rate for non-durables.
The rise in energy prices not only affected consumers but also trickled down to the Producer Price Index (PPI). While the core PPI remained essentially flat, the PPI was impacted by the increase in energy prices.
Despite the PPI and core PPI hovering around the 2% range, these figures have yet to translate into consumer prices. Real (Inflation Adjusted) earnings continue to stay positive year over year, but the month over month reading shows a decline.
Positive Numbers in Retail
An encouraging sign came from the retail sector, as we witnessed positive month over month and year over year gains in retail sales.
United Auto Workers’ (UAW) Strike Top of Mind for Manufacturing
Another area showing improvement was the manufacturing industry. Both monthly and annual growth were evident, and capacity utilization experienced a slight improvement. This may indicate a bottoming out of the manufacturing weakness we’ve seen. However, if the United Auto Workers (UAW) strike continues for a couple of weeks, we could anticipate a potential deterioration in the manufacturing sector in the coming months.
Looking Ahead: Mixed economic indicators will continue to spur competing narratives.
Overall, inflation continues its downward trend, albeit at a slow pace. However, persistent inflationary pressure in services and housing poses challenges. The impact of food and energy costs can quickly affect the wealth of households.
Looking ahead in the week of September 18, we anticipate key readings in the housing market. However, all eyes will be on the Federal Reserve’s open market meeting on Wednesday of this week. Although it is widely expected that they will hold rates steady, we anticipate the Fed will reiterate their commitment to closely monitor the information and potentially set expectations for a future rate hike.
While there is some headway in inflation, it is still premature for the Fed to declare victory.
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