Last week was relatively quiet on the economic update front, with reports on inflation and weekly unemployment providing the highlights. This week will be much busier, with updates scheduled to cover consumer confidence and spending, the housing market, and the Fed’s September meeting.
Last Week’s News
On Thursday, the Producer Price Index for August was released. Producer prices increased by 0.3 percent during the month, against estimates for 0.2 percent growth. Declining food and energy prices in August held back the overall pace of producer inflation. Core consumer inflation, which strips out the impact of volatile food and energy prices, also came in above expectations, showing a 0.4 percent increase against calls for a 0.2 percent growth. Despite the increase in producer inflation, producer prices were down 0.2 percent on a year-over-year basis in August, highlighting the deflationary pressure created by the pandemic.
Thursday also saw the release of the initial jobless claims report for the week ending September 5. There were 884,000 claims filed for initial unemployment during the week, a result in line with the previous week but above economist estimates for 850,000 initial filers. Continuing unemployment claims, which are reported with a one-week lag to initial claims, also disappointed, rising from 13.292 million to 13.385 million against forecasts for a decline to 12.904 million. Marking the first time continuing claims have increased since mid-July, this report is a worrying signal given the otherwise generally improving economic conditions. These disappointing results highlight the continued pressure on the labor market and the very real work that must done to get the economy back to pre-pandemic levels.
Friday saw the release of the Consumer Price Index for August. Consumer inflation also came in slightly above estimates, with prices rising by 0.4 percent during the month against forecasts for 0.3 percent growth. Core consumer inflation, which excludes energy and food prices, also rose by 0.4 percent in August, against estimates for a 0.2 percent increase. On a year-over-year basis, headline consumer inflation grew by 1.3 percent and core consumer inflation rose by 1.7 percent. Consumer prices were pressured by lowered inventories during the month, as demand rebounded more quickly than production once reopening efforts took hold. Still, despite the higher prices in August for consumers and producers, inflation remains well below the Fed’s stated 2 percent target. Given the continued weakness in the labor market, the Fed is not expected to react to modestly higher prices by tightening monetary policy this year.
What to Look Forward To
We’ll start the week with Tuesday’s release of August’s industrial production report. Production is expected to increase by 1 percent during the month, following a solid 3 percent increase in July. Manufacturing output, which went up by a better-than-expected 3.4 percent in July, should show a 2 percent increase in August, driven by the continued reopening of factories and a rebound in demand. If estimates hold, this report would mark four straight months of industrial production growth. Nonetheless, the overall level of production remains well below pre-pandemic levels, signaling further work is needed.
On Wednesday, August’s retail sales report is set to be released. Headline sales are expected to show 1 percent growth during the month, following a 1.2 percent rise in July. Core retail sales, which strip out the impact of volatile food and gas sales, are expected to go up by 1.3 percent, down from 1.9 percent growth in July. Even with the anticipated increases for headline and core sales, which would certainly be welcome, August would represent the worst month for sales since reopening efforts kicked off in May, highlighting the slowdown in the recovery during the summer. Consumer spending accounts for the lion’s share of economic activity, so retail sales will be closely monitored by economists as we head into the fall.
Also on Wednesday, the National Association of Home Builders Housing Market Index for September is set to be released. This measure of home builder confidence is expected to remain flat, following a better-than-anticipated increase to 78 in August. The strong results in August brought the index to its highest level since 1998, so a flat month would be nothing to worry about. Home builder confidence bottomed at 30 in April, but the impressive rebound for the index since then shows the strength of the housing market in the recent recovery. The housing industry has been supported by record low mortgage rates that continued to grind lower throughout the summer, which drove additional prospective home buyers into the market.
Speaking of rates, the third major release on Wednesday will be the FOMC rate decision at the Fed’s September meeting. The Fed cut the federal funds rate to virtually zero at the start of the pandemic, and economists do not anticipate any rate hikes this year. This meeting will be interesting, as the Fed’s previous meeting occurred at the end of July, when the public health picture was worsening notably. Given the improvements since then on the public health front, economists will be scrutinizing Fed Chair Jerome Powell’s press conference for insights into how the central bank views the evolving public health picture. Ultimately, given the continued pressure on the labor market, the Fed is expected to remain extremely supportive for the short to intermediate term.
On Thursday, we’ll return to housing with the release of August’s building permits and housing starts reports. Economists anticipate that these two measures of new home construction will show mixed results, following significantly-better-than expected numbers in July, when permits and starts rose by 18.8 percent and 22.6 percent, respectively. Permits are slated to increase by 3.2 percent in August, and starts should fall by 3.1 percent. Previously, the rebound in housing starts had brought this segment close to pre-pandemic levels, so this anticipated modest decline is understandable given the strong results in July. Throughout the summer, improving home builder confidence supported the swift rebound in new home construction, which in turn has helped drive faster sales growth in regions with constrained supply.
Thursday will also see the release of the weekly initial jobless claims report for the week ending September 12. Economists expect to see 850,000 initial claims filed during the week, which would represent an improvement from the 884,000 initial claims filed the week before. Still, over the past few weeks, initial claims have plateaued, which is a concerning development given the high level of claims on a historical basis. For comparison, during the great financial crisis, initial claims peaked at 665,000 per week, but they have now spent more than five months above that level. Continuing unemployment claims are also historically high, giving us another cause for concern. As the labor market continues to face significant stress, these weekly releases will be closely monitored by economists for the timely picture they provide as to the health of the job market.
Finally, we’ll finish the week with Friday’s release of the preliminary estimate of the University of Michigan consumer sentiment survey for September. This early look at consumer confidence is expected to show a modest improvement from 74.1 in August to 75 in September. Consumer confidence has been volatile throughout the summer, with an initial improvement in June offset by a drop in July and a modest recovery in August. If estimates hold, this report would mark two straight months with improved confidence. Nonetheless, the index would still fall below the post-pandemic high of 78.1 it hit in June and well below the pre-pandemic high of 101 set in February. Improving consumer confidence has historically supported faster consumer spending growth, so any increase in the index would be welcome, but the low overall confidence levels are cause for concern.
That’s it for this week—thanks for reading and stay safe!