Last week was relatively quiet in terms of economic updates, with only two major data releases. Initial jobless claims continued to decline to start September, while producer prices increased by more than expected in August. This will be a busier week for updates, with reports to come on consumer inflation, industrial production, retail sales, and consumer sentiment.
Last Week’s News
On Thursday, the initial jobless claims report for the week ending September 4 was released. There were 310,000 initial unemployment claims filed, in a result was down from the upwardly revised 345,000 initial claims filed the week before and below economist estimates for 335,000 initial claims. This better-than-expected report brought the pace of weekly layoffs to its lowest level since the start of the pandemic. Over the course of the year, we’ve made notable progress in getting initial unemployment claims down, and they are now starting to approach pre-pandemic levels. The continued improvement for initial claims throughout August and the start of September indicates that businesses are not making mass layoffs in response to the rising medical risks. This is an encouraging signal that the labor market recovery continues despite the slowdown in the pace of hiring in August.
Friday saw the release of the August Producer Price Index, which showed producer prices increasing by 0.7 percent during the month. This result was down from the 1 percent increase in July but slightly higher than economist estimates for a 0.6 percent rise. On a year-over-year basis, producer prices increased by 8.3 percent, up from the 7.8 percent increase in July and above economist estimates for an 8.2 percent increase. Core producer prices, which strip out the impact of volatile food and energy prices, increased by 0.6 percent in August, down from the 1 percent increase in July and in line with economist estimates. On a year-over-year basis, core producer prices rose by 6.7 percent, up from the 6.2 percent annual core producer inflation rate in July and above estimates for a 6.6 percent increase. The upward pressure in producer prices over the past few months has been due to material and labor shortages, as well as supply chain bottlenecks.
What to Look Forward To
On Tuesday, the Consumer Price Index for August will be released. Economists expect to see consumer inflation moderate, with prices set to increase by 0.4 percent in August and 5.3 percent year-over-year. If estimates prove accurate, this report would show a modest decline in both monthly and annual consumer inflation. In July, consumer prices increased by 0.5 percent for the month and 5.4 percent year-over-year. Core producer prices, which strip out the impact of volatile food and energy prices, are expected to increase by 0.3 percent during the month and 4.3 percent year-over-year. This year, consumer prices have faced upward pressure due to high consumer demand following the lifting of state and local restrictions in the spring. Tangled global supply chains and labor shortages have also contributed to the increase in inflationary pressure. Notably, despite the higher-than-normal inflation figures, the Fed remains committed to supporting the labor market recovery.
Wednesday will see the release of the August industrial production report. Production is expected to increase by 0.4 percent during the month, following a 0.9 percent increase in July. The better-than-expected July result was driven in large part by an 11.2 percent spike in auto production, caused by factories cancelling their typical July plant shutdowns to retool. Manufacturing output is expected to increase by 0.4 percent in August, following a 1.4 percent increase in July. If estimates hold, August would represent a solid month for industrial production and manufacturing output growth despite the slowdown from July’s pace. The manufacturing industry has been slower to recover compared with the consumer side of the economy, given the headwinds created by material and labor shortages. With that said, high consumer demand should support additional production in the months ahead, especially if improvements are seen on the public health front.
On Thursday, the initial jobless claims report for the week ending September 11 is set to be released. Economists expect initial claims to increase modestly during the week, from 310,000 to 320,000. Still, even with the anticipated increase, this report would represent the second-fewest initial unemployment claims in a week since the start of the pandemic. This would be an encouraging signal. Claims can be volatile on a week-to-week basis, but, if estimates hold, the four-week moving average for initial claims would set a new pandemic-era low. The recent decline in initial claims is likely being driven by labor shortages across the country, causing businesses to be reluctant to lay off employees that could be difficult to replace. This weekly report has been widely monitored since the start of the pandemic, when initial lockdowns led to a surge in layoffs. As we’ve seen in the numbers, there’s been a notable improvement over the course of the year. Given the continued resilience of the labor market in August and September, we are nearly back to historically normal levels for weekly initial claims.
Thursday will also see the release of the August retail sales report. Sales are expected to decline by 0.8 percent during the month, following a 1.1 percent decline in July. If estimates hold, this report would mark the first two consecutive months of sales declines since November and December of last year, when rising medical risks and restrictions negatively affected spending. Core retail sales, which strip out volatile auto and gas sales, are expected to decline by 0.3 percent in August, following a 0.7 percent decline in July. Rising medical risks negatively affected consumer confidence in July and August, and the anticipated decline in spending reflects the lower confidence levels. Overall, however, retail sales are expected to remain well above pre-pandemic levels. Furthermore, the anticipated decline in August is understandable given the recent declines in consumer confidence. Looking forward, we’ll likely need to see improvements on the public health front and a rebound in consumer confidence before high levels of monthly sales growth return. Still, if sales remain near current levels, they would indicate that consumer spending is more resilient now compared with spending during earlier waves of the pandemic.
We’ll finish the week with Friday’s release of the preliminary estimate of the University of Michigan consumer sentiment survey for September. Economists expect to see consumer confidence increase modestly during the month, with the index set to rise from 70.3 in August to 72 to start September. Despite the anticipated rebound, however, the anticipated result would represent the third-lowest reading for the index since the start of the pandemic. It would trail only last month’s disappointing result and the 71.8 reading recorded in April 2020 at the height of the lockdowns. Previously this year, in April, the index rebounded to 88.3. Throughout the summer, however, rising medical risks and inflationary pressure dampened consumer enthusiasm. Historically, higher levels of consumer confidence have supported faster consumer spending growth. Furthermore, consumer spending accounts for the majority of economic activity in the country. Accordingly, this report will continue to be closely monitored.
That’s it for this week—thanks for reading!