There are a few important reports on the U.S. economy worth mentioning this morning. First, data from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America remained nonexistent last month, as the producer price index for final demand (PPI-FD) ended August unchanged from July. “Core” PPI-FD, which excludes the more volatile food and energy components, edged higher by 0.1 percent last month, matching economists’ expectations and due largely to the continued acceleration in health-related inflation. Moreover, core PPI rose by just 1.0 percent over the past twelve months, while the specific gauge of healthcare services costs grew by 1.6 percent. This particular PPI component is worth monitoring closely because it is used in the measure of overall U.S. inflation preferred by officials at the Federal Reserve, i.e. the Personal Consumption Expenditures (PCE) price index. Household inflationary pressures, though, appeared a bit stronger last month because the consumer price index (CPI) for all urban consumers, also released this week, lifted by 0.2 percent in August, more than anticipated. Core CPI rose by 0.3 percent in August and 2.3 percent over the past twelve months, the fastest pace of annual growth in eight years and above the Fed’s 2.0 percent “target.” However, the market’s knee-jerk reaction to these two reports was muted, suggesting that the mixed data were not expected to have a significant effect on the odds of a rate hike being announced at next week’s Federal Open Market Committee (FOMC) meeting.
Elsewhere, the consumer sentiment index from the University of Michigan registered 89.8 in the first half of September. This was unchanged from July, below economists’ expectations, and one of the lowest readings of the past year. Americans’ outlooks for the future improved this month due mainly to a sharp drop in consumers’ inflation expectations for the next twelve months (2.3 percent). Long-term (5-year) inflation expectations have also fallen recently to just 2.5 percent, a record low. Respondents’ views of current conditions, though, deteriorated this month, as modest gains in the outlook for the U.S. economy were offset by declines in income prospects as well as reported buying plans. However, Richard Curtin, director of the Michigan Survey of Consumers, stressed that “All of these changes were relatively minor. Overall, consumers remain reasonably optimistic about their economic prospects. Real personal consumption expenditures can be expected to grow by 2.6 percent through mid-2017.”
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoL, UoM, FRBSLPost author: Charles Couch