Weekly Economic Trends and Indicators

The Headline:

Two very important data points were released last week by the Bureau of Labor Statistics (BLS). The Consumer Price Index (CPI) decreased by 0.1% in June (seasonally adjusted). This comes on the heels of the unchanged reading in the month of May. Over the last 12 months, the CPI has increased by 3.0% before seasonal adjustments.

The Producer Price Index (PPI), a measure of inflation at the wholesale level, increased by 0.2% in June, which was slightly above expectations. There was a large disparity between goods and services in the PPI, with the prices of final demand goods decreasing by 0.5% and the prices of final demand services surging by 0.6%.

The Details:

After removing the more volatile food and energy sectors from the CPI, inflation was still positive with the core CPI increasing by 0.1%. Energy prices continued to fall, continuing the trend of the last couple of months. Gasoline prices fell by 3.8% in June, and electricity decreased in price by 0.7%. Used car and truck prices fell by 1.5%. Transportation services (which includes auto insurance) fell by another 0.5% after a similar decline in the previous month.

Looking at the inflation numbers close to home, the CPI for the West North Central region (the BLS region for the Quad Cities) increased at about the same rate as the U.S. for the 12 months ending in May. The national inflation rate for that period was 3.3% and the regional rate was 3.4%.

Nationally, employment costs have been running well above consumer inflation for most of the last year. However, employment costs in the West North Central region have been more subdued, adding to the region’s competitiveness for attracting business. The regional PPI has been quite stable over that same period for industries of local interest such as food manufacturing, primary metal manufacturing, and general freight trucking.

The Context:

The CPI report was certainly welcome news to an economy that has been waiting for confirmation that things are moving in the right direction. Even the PPI, which was slightly above the expected number, is not too much cause for concern due to the highly variable nature of this statistic.

In Federal Reserve Chair Jerome Powell’s testimony before Congress this week, he stopped short of directly addressing the path of interest rates. However, his words, together with the positive inflation news caused the market’s expectation of a rate cut in September to become almost a certainty (probability of 86% according to the CME FedWatch tool). Wall Street cheered the news by sending the major averages to new highs. While we are not out of the woods yet, last week's data tips the balance slightly more in favor of the desired “soft landing.”

Next week: Manufacturing update