Inflation Figures Show That Inflation Continued to Perk Up in August

By | September 14, 2020

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.

Overview

European shares struggled for momentum on Friday as doubts about extra monetary stimulus and overnight declines in U.S. big tech stocks kept investors on edge. Elevated fears over a messy Brexit added to the bearish sentiment. The pan-European STOXX 600 opened lower before gaining 0.2%. MSCI’s broadest index of Asian-Pacific shares outside of Japan added 0.4% moving away from a one-month trough touched earlier in the week. Global stocks are still trading near the most expensive levels relative to profit since the 2000 tech bubble, causing some analysts to call for cation. People are still wondering of the coronavirus infections could accelerate in the Northern hemisphere.

The Nasdaq slid and the S&P closed little changed on Friday as early gains in technology and growth names faded, with three of the major Wall Street averages posted their second straight weekly declines. The tech sector posted its fifth decline in six days and the biggest weekly decline since March as investors sold shares in companies such as Apple Inc. that spearheaded the dramatic rally from the coronavirus lows in March. The Dow Jones Industrial Average closed up 131.06, or 0.48% to 27,665.64. The S&P 500 gained 1.78 points, or 0.05% to 3,340.97 and the Nasdaq dropped 66.05 points, or 0.6% to 10,853.55. For the week, the Dow fell 1.66%, the S&P lost 2.51% and the Nasdaq dropped 4.06%. 

Weekly initial claims held steady at 884,000 in the week ending September 5. The not seasonal adjusted claims inclined by 2.4% to 857,148 from the previous week. New filings for pandemic Assistance increased 12.2% to 838,916. Continuing claims increased by 93,000 from 13.85 million in the week ending August 29. The outlook for labor is mixed. Initial claims have been steady but there is little evidence to suggest that the labor market is improving materially in early-September. Initial claims have been below a million for a sixth week, but further improvement might be tough work. The daily rate of new infections has come down from July but has plateaued at near 40,000. Recent payroll data was decent, but it would still take eight and a half months at the August rate to reach pre-pandemic levels.

Economic data was light in the holiday-shortened week. There was attention to the state of the labor market, where recent jobless clams remain stubbornly high and point to a slowing job rebound. Although there has been mixed signals on labor, the trajectory still looks positive. Half the unemployed still view their job losses as temporary, which is encouraging. Job openings increased by 617k in July to 6.6 million, but the number of unemployed in July was 2.5 workers for every job opening, about even with 2014 levels. Small business openings remain weak, about 8% of firms in August. This suggests that job creation will slow but it also likely to remain positive. This is very important for an economy as it enters the new-year.

Aside from claims data, inflation figures show that inflation continued to perk up in August. However, inflation is still restrained and it will take some time before the inflation rate hits the target and the Fed starts to move. Both the CPI and the core rate hit 0.4% in August. Next week, we get a look at industrial production, retail sales, business inventories, housing starts and an Open Market Committee meeting.

Latest Data

The U.S. Economy:

The NFIB small business optimism index increased 1.4 points in August to 100.2. This followed July’s 1.8 pint decline. Seven out of the ten components improved in August from July. Plans to increase employment increased to 21% from 18% in July. Plans to make capital expenditures was unchanged at 26%. Expectations for the economy to improve the next six months fell slightly to 24% from 25%. Expectations for sales to improve fell to 3% from 5%. Confidence did improve in August, but the NFIB’s uncertainty index rose to 90 in August, the second highest reading since 2017. The rise in coronavirus infections is slowing economic activity and the NFIB index is a return to just under June’s level. Plans to make capital expenditures is back at February’s level. The recovery continues but is still fragile.

The U.S. producer price index increased 0.3% in August, following a 0.6% rise in July. Prices for final demand goods were up 0.1% and services increased 0.5%. The PPI for final demand excluding food, energy and trade services increased 0.3%, its third consecutive monthly increase. Total final demand prices were down 0.2% from a year earlier. Goods prices were down 1.6% y/y but core goods were up 0.8%. 

Consumer prices increased 0.4% in August, in part driven by a 0.9% increase in energy prices, which increased 2.5% in July. Energy prices remain 9.1% below their year ago level. Used car and truck prices did surge 5.4% in August. The core CPI rose 0.4% in August, its third consecutive monthly increase after falling for three months. The CPI was up 1.3% on a year-over-year basis and the core CPI was up 1.7% in August. The rollback of containment in recent months has restored a large fraction of demand for most products. The supply chain disruptions that plagued the economy and caused food prices to increase in the early weeks of the pandemic have abated. Inflation will remain positive but restrained as the economy is not nearly hot enough to create much inflation.

Important Data Releases This Week

The August industrial production report will be released on Tuesday, September 15 at 9:15 AM. Industrial production is doing fine but will be tested as auto sales stalled in August and some headwinds will arise as final demand slows to a normal pace. We still total IP and manufacturing to rise 0.8% for August.

August retail sales will be released on Wednesday, September 16 at 8:30 AM. Sales have been strong, rising 1.2% in July and brought sales to 1.2% above February’s peak. Spending on goods has been stronger than on services that are still impacted by social distancing. Spending has been supported by the fiscal stimulus that is running dry. The savings rate is high and should support spending in coming months. We project that retail sales will increase 1.0% in August.

FMOC Meeting Wednesday at 2 PM. At the Jackson Hole Symposium, Chair Powell announced a shift in how the Fed will conduct monetary policy. On short the FMOC will adapt a flexible average inflation fighting regime, which will aim to “achieve inflation that averages 2% over time.” This meeting will reflect these changes as well as the first update to the fed funds plot since June. No move in the fed funds rate can be expected for some time.

August housing starts will be released on Thursday, September 17 at 8:30 AM. Housing starts jumped 22.6% in July way above expectations. Single-family starts increased a solid 8.2%. Homebuilder confidence has increased strongly. Mortgage rates have declined to below 3%. Given that inventories remain ow, single-family construction should continue to trend higher but the multi0family sector may slow. Housing starts are projected to equal 1.480 million for August, down from the 1.496 million pace for July.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.

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