The Independent Market Observer

Monday Update: Concern over Inflation Grows Among Consumers

Posted by Sam Millette

This entry was posted on Aug 20, 2018 12:29:27 PM

and tagged In the News

Leave a comment

Monday updateToday’s post is from Sam Millette, a fixed income analyst on Commonwealth’s Investment Management and Research team.

Last week’s major economic releases were focused mainly on housing and consumers. The news was a mixed bag for both. This week will be relatively quiet, with only two major data releases.

Last week’s news

On Wednesday, retail sales data for July was released. This measure of consumer spending came in much better than expected, showing 0.5-percent monthly growth against expectations for 0.1-percent growth. This surprise to the upside for the headline figure was also supported by solid 0.5-percent growth in the core retail sales figure, which does not include volatile auto and gas purchases.

One of the major factors behind this strong growth rate was the annual Amazon Prime Day, which contributed to a 0.8-percent bump in nonstore retail sales for the month. Going forward, a modest slowdown in these growth levels is likely, as we’ve now seen a few consecutive months with annual growth levels greater than 6 percent.

On Thursday, building permits and housing starts were mixed. Permits came in above expectations with 1.5-percent growth. Housing starts, however, came in at 0.9-percent growth, far below expectations for 7.4-percent growth. This result follows a decline of 12.3 percent for housing starts in June. New home supply remains low, and rising interest rates and housing prices appear to be affecting the market. Without meaningful growth in these two metrics, a lack of new homes could continue to drive prices up and eventually lead to slower overall growth in this important sector of the economy.

Finally, on Friday, the University of Michigan consumer confidence survey declined from 97.9 to 95.3. This decline was driven by growing concern over inflation. Consumer inflation expectations ticked up to 2.5 percent in July, and headline consumer inflation hit a six-year high. Consumer confidence is one of the key drivers of spending growth, so this will be another important area to monitor.

What to look forward to

On Wednesday, the minutes from the August 1 meeting of the Federal Open Market Committee will be released. At that meeting, the committee kept rates flat. The major section of the minutes to watch for will be the commentary surrounding inflation, as most inflation figures are now above the Fed’s stated 2-percent target.

On Friday, July’s durable goods orders are expected to show a slight decline due to transportation orders. The core figure, which excludes volatile transportation orders, is expected to show steady 0.5-percent growth. This proxy for business confidence has been growing steadily throughout the year, so a decline in the headline number would be nothing to worry about.

Have a great week!


Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®