Trend watch and what’s new this week
With Labor Day behind us, travel has faded with the summer heat based on the activity-based data (slides 5 and 6). Weekly air passenger counts, restaurant bookings, and overall mobility all slipped. Back-to-office have ticked up in the latest week. Back-to-office also slumped in the latest week.
Hotel occupancy fell for the seventh straight week (slide 7). Yet, this typically occurs as the summer wanes, following a similar pattern as 2019 and 2021.
Mixed inflation data, though most show cooling trend
Consumer inflation was mixed in August. The Consumer Price Index (CPI) rose 8.3% from a year ago compared to 9.1% in June. Energy prices dropped 5.0% month-over-month, helped by a 10.1% decline in gasoline prices, but utility prices rose 2.1%. However, core CPI, which excludes the volatile food & energy components, reaccelerated. Among the culprits, shelter (rents) increased 0.7%, the fastest monthly pace since 1991.
On slide 8, we show the month-over-month and year-over-year trends for both headline and core CPI. On slide 9, we look ahead at several CPI scenarios, showing how inflation might unfold over the coming year.
Meanwhile, wholesale inflation readings, known as producer prices (slide 10), cooled for the second straight month. The Producer Price Index (PPI) fell 0.1% in August, though was -0.4% in July. The annual pace of core PPI, which excludes food & energy, cooled for the fifth straight month. It rose 7.3% from a year ago compared to 9.7% in March. Of course, wholesale prices eventually work their way into consumer prices.
After falling during the pandemic, rents spiked during 2021. Now the Zillow Rent Index shows that rental price growth has continued to moderate on a month-over-month basis, up 0.6% in August (slide 11). While still above the pre-pandemic pace of 0.45%, it was less than half of the 2021 average of 1.3%. Also, the pace declined for the second month in a row and the 9th in the past 12 months.
Lastly in terms of inflation, the recovery for global supply chains continued in August (slide 12). The Global Supply Chain Pressures Index decreased for the fourth straight month and is now at its lowest reading since January 2021.
Consumer still appears solid
On slide 13, we show retail & food sales, which rose 0.3% in August. Auto sales surged 2.8%, but gasoline sales dropped 4.2%; together those two sector comprise almost a third of total sales. Excluding both, sales hit a new all-time high. Food service and drinking establishments sales also rose 1.1%.
Consumer sentiment rose again, inflation expectations falling
Consumer sentiment continues to improve after being battered this summer thanks to sky-high gasoline prices. On slide 14, the University of Michigan Consumer Sentiment Survey rose for the third straight month after crashing in June to the lowest level since the survey began in 1978. Meanwhile, within the survey, long-term inflation expectations slumped to their lowest level in 14 months. This is a key indicator for the Federal Reserve (the Fed), which is keen on reining in inflation expectations.
Despite some mixed components, it still appears that inflation has peaked based on various price measures. Yet, as the consumer inflation gauges showed in August, inflation is indeed more broad-based. In other words, simply seeing gasoline prices dropping is not enough to move the needle.
Ultimately, it’s not entirely clear whether overall inflation trends and inflation expectations are moderating enough to satisfy the Federal Reserve (Fed) decisionmakers.
A steady stream of Fed leaders, including Chairman Jay Powell, have voiced support of three-quarter point (0.75%) rate hike at the September Fed meeting. In his Jackson Hole speech two weeks ago, Powell pointedly referenced history regarding the dangers of prematurely loosening policy as validation to keep rates higher for longer. Accordingly, we anticipate that the Fed will raise rates by three-quarter point on September 21. However, given the reacceleration of some inflation, we wouldn’t rule out a full-point (1.00%) rate hike.
Of course, this uncertainty caused some panic in U.S. stock and bond markets this past week. Our core thesis remains that markets will likely stay in choppy waters.
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