Evelyn Reynolds

Advanced retail sales accelerated 1% on the month, much better than the 0.3% estimate.
In other economic news, weekly jobless claims totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.
The reports come the same week as data showing that inflation eased slightly in July.

An H&M store is seen in Herald Square on July 01, 2024 in New York City. 
Michael M. Santiago | Getty Images

Consumer spending held up even better than expected in July as inflation pressures showed more signs of easing, the Commerce Department reported Thursday.
Advanced retail sales accelerated 1% on the month, according to numbers that are adjusted for seasonality but not inflation. Economists surveyed by Dow Jones had been looking for a 0.3% increase. June sales were revised to a decline of 0.2% after initially being reported as flat.

Excluding auto-related items, sales increased 0.4%, also better than the 0.1% forecast.
There was also good news on the labor market front: Initial unemployment benefit claims for the week ended Aug. 10 totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.
Gains in sales were propelled by increases at motor vehicle and parts dealers (3.6%), electronics and appliance stores (1.6%), and food and beverage outlets (0.9%). Miscellaneous retailers saw a plunge of 2.5% while gas stations saw receipts climb just 0.1% and clothing stores were down 0.1%.

Stock market futures rose sharply following the Thursday morning data releases, while Treasury yields spiked as well.
The report comes the same week as data showing that inflation eased slightly in July.

Prices that consumers pay for goods and services increased 0.2% on the month, and the annual inflation rate declined to 2.9%, its lowest since March 2021. At the same time, wholesale prices were up just 0.1% on the month and 2.2% on the year.
While the inflation numbers remain above the Federal Reserve’s 2% target, the data shows continued easing of price pressures that had peaked two years ago. Financial markets expect the Fed to respond with its first rate cut in more than four years when it next meets in September, though a resilient consumer could give policymakers more reason to take a measured approach to cuts.
Echoing the theme of a stable consumer, Walmart earlier Thursday reported strong earnings and sales for the previous quarter and raised its outlook, though it sounded some cautionary notes about the second half of 2024.
In addition to looking for lower rates, investors also increasingly are expecting the Fed to turn its attention from a laser focus on inflation to a broader look at potentially weakening conditions in the labor market and elsewhere.
Unemployment benefit filings numbers from the Labor Department also showed that continuing claims, which run a week behind, declined slightly to 1.864 million. A weaker-than-expected July payrolls report had stirred concern that the labor market could be weakening.
Other economic data released Thursday showed that the manufacturing picture is wobbling.
The New York Fed’s Empire State Manufacturing gauge edged higher but was still in negative territory at -4.7, slightly better than the -6 estimate. At the same time, the Philadelphia Fed manufacturing measure slid to -7, its first negative reading since January and well below the forecast for 7.9.
Both indexes measure the percentage of companies reporting expansion against contraction.

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The U.K. economy grew by 0.6% in the second quarter of the year, the Office for National Statistics said Thursday, in line with the expectations of economists polled by Reuters.
The print follows an expansion of 0.7% in the first quarter.
Economic growth was flat in June, in line with a Reuters poll.

A guided tour in the center of in York, UK, on Friday, June 7, 2024.
Bloomberg | Bloomberg | Getty Images

The U.K. economy grew by 0.6% in the second quarter of the year, the Office for National Statistics said Thursday, continuing the country’s cautious recession rebound.
The reading was in line with the expectations of economists polled by Reuters and follows an expansion of 0.7% in the first quarter.

Economic growth was flat in June, in line with a Reuters poll, as activity in the U.K.’s dominant services sector dipped 0.1%. Construction and production output rose by a respective 0.5% and 0.8% in the month.
The British economy has recorded slight but steady growth almost every month so far this year, as the U.K. exits a shallow recession. GDP was also flat in April, when wet weather quelled retail sales and construction output.
On an annual basis the economy was 0.9% bigger in the second quarter, against a forecast of 0.8%.
“These figures confirm that the UK’s recovery from recession picked up steam in the second quarter, despite strike action and wet weather causing activity to flatline in June,” Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said in a note.
“The UK’s strong second quarter owes more to temporary momentum from the large recent falls in inflation and a boost to consumer spending from events like Euro 2024 than from a meaningful improvement in the UK’s underlying growth trajectory,” Thiru continued.

The pace of growth is unlikely to continue into the second half amid weaker wage growth, high interest rates and supply challenges, Thiru added.
U.K. inflation rose to 2.2% in July, data published Wednesday by the ONS showed, coming in slightly below a consensus forecast of 2.3%. The headline figure had been at the Bank of England’s 2% target rate for the two months prior, helping spur the central bank’s decision to cut interest rates by 25 basis points at the start of August.
The July figures were described by analysts as supportive of consistent monetary easing through the rest of the year, despite stubbornness in services inflation.
Over the April-June period, U.K. wage growth excluding bonuses cooled to a two-year low, but remained relatively hot at 5.4%.
Richard Carter, head of fixed interest research at Quilter Cheviot, said lower interest rates should “help stimulate more economic growth by making borrowing more affordable for households and businesses” in the coming months — but noted that it would take time for the impact to be felt.
The British pound ticked slightly higher following Thursday’s GDP release, and was up by 0.25% against the U.S. dollar and 0.2% against the euro at 12:17 p.m. in London.

Improved outlook

Institutions including the International Monetary Fund, investment bank Goldman Sachs and the Bank of England have all hiked their growth forecasts for the U.K. economy in recent months. The IMF now sees growth of 0.7% this year, up from 0.5% previously.
Factors cited include the decline in inflation and reforms to planning and business rules planned by the new Labour government, which took office in July. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have repeatedly stated that boosting economic growth will be the bedrock of their policymaking, setting a target for the U.K. to achieve the fastest per capita GDP growth among the Group of 7 nations.
“The new Government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22 billion black hole in the public finances,” Reeves said in a statement Thursday.
Labour is due to deliver its first budget on Oct. 30, with analysts saying the announcement will give more clarity on the government’s fiscal strategy and plans for changes to taxation and public spending.
Because of this, “it is unlikely that we will see a marked acceleration in GDP in the short term,” said Quilter Cheviot’s Richard Carter.
“For now, the economy is expected to continue on its relatively moderate growth path, bolstered by wage growth that remains ahead of inflation and the recent easing of monetary policy,” he added. More

Signs reading, ‘please bear with us: we are currently experiencing interruptions in our supply chain which may affect the availability of certain products,’ is seen taped to the drive-up menu at a Wendy’s restaurant on May 06, 2020 in Miami, Florida. 
Joe Raedle | Getty Images News | Getty Images

Inflation rose as expected in July, driven by higher housing-related costs, according to a Labor Department report Wednesday that is likely to keep an interest rate cut on the table in September.
The consumer price index, a broad-based measure of prices for goods and services, increased 0.2% for the month, putting the 12-month inflation rate at 2.9%. Economists surveyed by Dow Jones had been looking for respective readings of 0.2% and 3%.

Excluding food and energy, core CPI came in at a 0.2% monthly increase and a 3.2% annual rate, meeting expectations.

The annual rate is the lowest since March 2021, while the core is the lowest since April 2021, according to the Bureau of Labor Statistics report. Headline inflation was 3% in June.
A 0.4% increase in shelter costs was responsible for 90% of the all-items inflation increase. Food prices increased 0.2% while energy was flat.
Stock market futures were mildly negative after the report while Treasury yields were mostly higher.

Though food inflation was soft on the month, multiple categories saw sizeable increases, most notably eggs, which were up 5.5%. Cereals and bakery items declined 0.5% while dairy and related products fell 0.2%.

Inflation readings have been gradually drifting back to the central bank’s 2% target. A report Tuesday from the Labor Department showed that producer prices, a proxy for wholesale inflation, rose just 0.1% in July and were up 2.2% year over year.
Fed officials have indicated a willingness to ease, though they’ve been careful not to commit to a specific timetable nor to speculate about the pace at which cuts might occur. Futures market pricing currently points to about an even chance of a quarter- or half-percentage point reduction at the Sept. 17-18 meeting and at least a full point in moves by the end of 2024.
As inflation has eased, percolating concerns about a slowing labor market seemed to have raised the likelihood that the Fed will start cutting for the first time since the early days of the Covid crisis.
“Coming down but the sticky areas continue to be sticky,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in describing the CPI report. “We have to keep a close eye on both the inflation data as well as the employment data.”
There were several crosscurrents in the report that indeed suggest inflation is stubborn in some areas.
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Economists surveyed by Dow Jones expect the consumer price index, to be released Wednesday at 8:30 a.m. ET, to show 0.2% increases on both the all-items reading and the core measurement.
A positive CPI reading could mean the Federal Reserve is able to turn its gaze to other economic challenges, such as the slowing labor market.
“Inflation is almost a nonissue at this point. There’s this broad expectation that the worst is easily behind us,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Product prices as seen at Walmart. 
Courtesy: Walmart

The news Tuesday was good for inflation, and investors hope it will get even better Wednesday when the Labor Department releases the July consumer price index report.
With the score being one down, one to go on confirming that the early-year jump in prices either was a fluke or the last gasp of inflation, a positive CPI reading could mean the Federal Reserve is able to turn its gaze to other economic challenges, such as the slowing labor market.

“At this point, the inflationary pressure that we saw build has really been dissipated significantly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Inflation is almost a nonissue at this point. There’s this broad expectation that the worst is easily behind us.”
Like others on Wall Street, Baird expects the Fed in September to shift its focus from tight policy to tackle inflation to a somewhat easier stance to head off a potential weakening in the jobs picture.
While consumers and business owners continue to express concern over high prices, the trend indeed has shifted. Tuesday’s producer price index, or PPI, report for July helped confirm optimism that the elevated inflation numbers that began in 2021 and spiked again in early 2024 are in the rearview mirror.

The PPI report, seen as a gauge of wholesale inflation, showed prices up just 0.2% in July and about 2.2% from a year ago. That number is now very close to the Fed’s 2% goal and indicative that the market’s impulse for the central bank to start cutting rates is about on target.
Economists surveyed by Dow Jones expect the CPI similarly to show 0.2% increases on both the all-items reading and the core measurement that excludes food and energy. However, that is projected to show respective 12-month rates of 3% and 3.2% — well below their mid-2022 highs but still a good distance from the Fed’s 2% target.

Still, investors are looking for the Fed at its September meeting to start cutting interest rates, considering that inflation is weakening and so is the labor market. The unemployment rate has now risen to 4.3%, a 0.8 percentage point increase over the past year that has triggered a time-tested recession flag known as the Sahm Rule.
“Given the focus on the relative weakening in the labor market, given the fact inflation is coming down pretty rapidly, and I expect it will continue over the next few months, it would be a surprise if the Fed didn’t start moving towards easing very quickly, presumably at the September meeting,” Baird said. “If they don’t at the September meeting, the market is not going to take kindly to that.”

Worries over slow Fed response

A brief pickup in weekly initial unemployment claims, combined with other weakening economic metrics, briefly had some in the market looking for an emergency rate cut.
While that sentiment has dissipated, there’s still worry about the Fed being slow to ease, just as it was slow to tighten when inflation began to escalate.
Another benign inflation report “makes the Fed completely comfortable that they can shift their focus away from inflation and toward labor,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “They could have shifted their attention from inflation to labor … months ago. There are cracks forming in the labor market backdrop.”
Amid the twin realities of declining inflation and rising unemployment, markets are pricing in the absolutely certainty of a rate cut at the Sept. 17-18 Fed meeting, with the only question left being how much. Futures pricing is roughly split between a quarter- or half-point reduction, and leaning heavily to the likelihood of a full percentage point reduction by the end of the year, according to CME Group calculations.
However, futures pricing has been well off the mark for most of the year. Traders started the year anticipating a rapid pace of cuts, then pulled back into expecting only one or two before the latest swing in the other direction.
“I’m as curious about [Wednesday’s] inflation report as anyone else, but I think it would take a real outlier to change the Fed’s tune from 1) shifting to labor as its focus, and 2) seriously thinking about cutting in September,” Porcelli said. “They should start off aggressively. I can easily make the argument for the Fed to cut 50 basis points just to kick things off because I think they should have been cutting already. I don’t think that’s what they will do. They’ll start it off modestly.” More

The producer price index, a measure of wholesale inflation, increased 0.1% on the month, less than 0.2% forecast. PPI excluding food and energy was flat.
On a year-over-year basis, headline PPI rose 2.2%, a sharp drop from the 2.7% reading in June.

A key measure of wholesale inflation rose less than expected in July, opening the door further for the Federal Reserve to start lowering interest rates.
The producer price index, which measures selling prices that producers get for goods and services, increased 0.1% on the month, the Labor Department’s Bureau of Labor Statistics reported Tuesday. Excluding volatile food and energy components, the core PPI was flat.

Economists surveyed by Dow Jones had been looking for an increase of 0.2% on both the all-items and the core readings.
A further core measure that also excludes trade services showed a rise of 0.3%.
On a year-over-year basis, the headline PPI increased 2.2%, a sharp drop from the 2.7% reading in June.
Stock market futures rose following the news while Treasury yields moved lower.
The wholesale inflation reading was relatively tame despite a 0.6% jump in final demand goods prices, the biggest move higher since February and due primarily to a 1.9% surge in energy, including a 2.8% increase in gasoline.

Countering the move was a 0.2% slide in services, the biggest move lower since March 2023, according to the BLS. Trade services prices fell 1.3% while margins for machinery and vehicles wholesaling tumbled 4.1%. An increase of 2.3% in portfolio management offset some of the decline in services prices.
The PPI is considered a leading indicator for inflation as it gauges pipeline inflation from the perspective of manufacturers and suppliers of goods and services. Its counterpart, to be released Wednesday, is the consumer price index, which measures the actual prices consumers pay in the marketplace. Economists also expect 0.2% monthly increases for both headline and core CPI.
Both measures are watched closely for inflation signs. Though the Fed more closely focuses on the Commerce Department’s personal consumption expenditures price index, the CPI and PPI both feed into that calculation.
The latest inflation data comes with markets fully pricing in an interest rate cut at the September meeting of the Fed’s open market committee. The main question now is whether the central bank will cut by a quarter or a half percentage point. The futures market currently rates it a toss-up.
Fed officials have vowed to keep up the inflation fight until they have reached their 2% goal, and the latest data for the most part has been cooperating.
A survey the New York Fed released Monday showed that consumers’ view of inflation three years from now fell to 2.3%, the lowest in the 11-year history of the survey.
Moreover, the survey also showed consumers, particularly at the lower end of the income scale, are beginning to suffer more from inflation. For instance, the perceived likelihood of missing a minimum debt payment in the next three months jumped to 13.3%, the highest since April 2020, with the biggest part of the 1 percentage point monthly increase coming from households with annual income below $50,000.
Expectations for credit access also declined, and household spending expectations over the next year fell to their lowest level since April 2021.

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