The Independent Market Observer

Monday Update: Inflation Slows Down and Consumer Confidence Rebounds

Posted by Sam Millette

This entry was posted on Oct 14, 2019 11:13:52 AM

and tagged In the News

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In his Monday Update, Commonwealth’s Sam Millette discusses the Fed’s recent minutes. Is the Fed likely to cut rates again this year?Last week’s news focused on inflation, consumer confidence, and the minutes from the Fed’s most recent meeting. This week will be another busy one, with reports on retail sales, housing, and industrial production scheduled.  

Last week’s news

On Tuesday, September’s Producer Price Index was released. Despite economist expectations for a modest 0.1 percent increase in prices during the month, producer prices declined by 0.3 percent. Consequently, year-over-year producer inflation fell to 1.4 percent, which is the lowest annual inflation rate in more than two years. Core producer prices, which strip out the effect of volatile food and energy inflation, also fell by 0.3 percent in September. This result marks the largest monthly drop in more than four years.

On Wednesday, the minutes from the Fed’s September meeting were released. The Fed chose to cut the federal funds rate by 25 bps at this meeting. The minutes showed that the Fed still views the labor market as strong and sees inflation near the stated 2 percent target. Looking forward, Fed members slightly lowered their median interest rate projections for the year, stating that continued global uncertainty could affect the U.S. economy. Accordingly, the Fed will be ready to step in with supportive policy as necessary.

On Thursday, the Consumer Price Index for September was released. As was the case with producer prices, economists expected to see modest 0.1 percent growth during the month. Consumer prices remained flat in September, bringing annual consumer inflation down to 1.7 percent. Additional tariffs on consumer products from China went into effect at the start of the month, but so far there is no evidence that prices have risen accordingly. The surprisingly weak consumer and producer inflation figures could support future rate cuts from the Fed. Market participants have largely priced in one more cut by the end of the year. 

Finally, we finished out the week with the release of the University of Michigan consumer confidence survey, which came in much better than expected. Consumer confidence rose from 93.2 in September to 96 in October, against expectations for a decrease to 92. This marks the second straight month of increased confidence, helping offset a large decline from August. With equity markets near all-time highs and jobless claims near all-time lows, it is encouraging but not surprising to see confidence increasing. High consumer confidence levels have supported the strong consumer spending figures we’ve seen for much of this year. The rebound in confidence over the past two months bodes well for fourth-quarter growth.

What to look forward to

On Wednesday, September’s retail sales report is set to be released. Economists expect to see 0.3 percent growth in headline sales, which would mark the seventh straight month of sales growth. Core retail sales, which strip out volatile auto and gas prices, are also expected to show 0.3 percent growth. Given the improved consumer confidence in September, it would not be surprising to see another strong retail sales result.

Wednesday will also see the release of the National Association of Home Builders Housing Market Index. This measure of home builder confidence is expected to remain flat at 68 in October, after rising to an 11-month high in September. Low interest rates and high buyer demand are expected to help bolster confidence. On Thursday, September’s building permits and housing starts are set to be released. Both are expected to fall following a surge in August.  

Also on Thursday, September’s industrial production report is set to be released. Economists expect production to decline by 0.1 percent, driven by a 0.3 percent decline in manufacturing output. Manufacturing confidence fell in September and spent the second straight month in contradictory territory. August saw a 0.6 percent jump in industrial production, but trade war escalations and the start of the General Motors strike in September are likely to weigh on production.

That’s it for this week—thanks for reading! 

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