July CPI, PPI, Leading Indicators, Existing Home Sales, August UI Claims

Inflation Up, Indicators Up, Home Sales and Labor Data Point the Other Way

  • The Consumer Price Index for July increased by 0.5 percent as gasoline prices rebounded.
  • The Producer Price Index for July gained 0.2 percent, pushed by higher food prices.
  • The Leading Economic Index looks rosy, increasing by 0.5 percent for July.
  • Existing Home Sales dipped by 3.5 percent in July to a 4.67 million unit annual pace.
  • Initial Claims for Unemployment Insurance climbed by 9,000 to 408K for the week ending Aug. 13

Inflation data for July got whipsawed by a surge in consumer energy costs as gasoline prices rebounded on a seasonally adjusted basis. The headline consumer price index for July gained 0.5 percent after falling by 0.3 percent in June. Gasoline prices were up 4.3 percent for the month, pulling the overall energy index up by 2.8 percent. Food also continues to get more expensive, gaining 0.4 percent for the month at the consumer level. Outside of food and energy (for those of you who don’t eat or drive), the core CPI gained a more sedate 0.2 percent for the month.  Producer prices were generally calmer. The PPI for finished goods for July increased by 0.2 percent. The energy component of PPI fell for the month, pointing to lower CPI energy inflation in August. Food prices at the producer level remain hot, gaining 0.6 percent for the month. Core producer prices were up 0.4 percent, attributable to higher tobacco and light truck prices. With lingering soft demand and oil prices staying in the mid-80’s inflation will remain in the moderate zone as we round out the third quarter.

The Conference Board’s Leading Economic index paints a somewhat rosy view of the economy, gaining 0.5 percent in July, its third consecutive moderate-to-strong increase. The index was pushed by money supply, interest rate spread, average initial claims, stock prices and manufacturers’ new orders. Financial markets have more recently soured and initial claims increased in the last data point casting some doubt on the believability of the Leading Index at this point in time. The coincident and lagging indexes were also up for the month. Existing home sales dipped by 3.5 percent in July to an annual rate of 4.76 million units, the weakest sales pace so far this year. Months’ supply of existing homes increased to 9.4 months putting downward pressure on prices. The median sales price of an existing home dipped in July and is down 4.4 percent from a year ago. Initial claims for unemployment insurance ticked back up, unable to fall significantly below the 400,000 mark. Initial claims gained 9,000 for the week ending August 13 to hit 408,000. This puts a damper on expectations for payroll job growth in August. I expect to see another month of only-tepid gains, in the neighborhood of 100,000 net new jobs for August.

Market Reaction: Equities are taking it on the chin again. Treasury yields are down. The 10-year T-Note is at 2.05 percent. Oil is down to $83.29/barrel. The dollar is down against the yen and up versus the euro.

 

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