Inflation is moderating,
The Consumer Price Index increased 0.5% for the month of July. Excluding the impact of food and energy, core CPI only increased 0.3% in July, slightly below expectations for a 0.4% increase, and well below June’s 0.9% increase. On an annual basis, core inflation is up 4.3% for July (down for 4.5% in June). At the same time, the Producer Price Index increased 1% in July, after a 1% increase in June. On an annual basis, July’s PPI came in at a whopping 7.8%, which is a record high since the index was created over ten years ago.
Moral of the story: The PPI is typically a leading indicator (directionally at least) on what is to come for the CPI as products continue to transact downstream. However, it’s important to note that there are a few things between PPI and CPI – companies deciding which price increases they’re going to eat themselves versus pass on to their consumers (which depends on how price sensitive consumers are toward these products), companies finding other cost efficiencies to maintain profit levels despite rising input prices, etc. The moderating CPI reading is definitely good to see though we will have to keep an eye on how the index fluctuates in the coming months.
Jobs are recovering,
Jobless claims for last week fell for the third consecutive week, coming in at 375k and continuing the recovery in the labor market. This is unsurprisingly also happening in tandem with many state-level COVID-related unemployment benefits rolling off. The federal level benefits are supposed to expire the first week of September, which should continue to accelerate the labor recovery as individuals are forced back into the job market.
Moral of the story: Though unemployment benefits are expected to roll off in September, other COVID-related programs (like the eviction moratorium) are already being extended and the spread of the delta variant is definitely throwing a wrench in our fall plans. I wouldn’t be completely shocked if the unemployment benefits are also extended further, which would obviously further extend the labor market recovery as businesses compete with the government for their employees.
But sentiment is plummeting.
The University of Michigan’s consumer sentiment index dropped to 70.2 for the preliminary August reading, which is the lowest reading since 2011 and one of the steepest drops ever recorded from July’s 81.2 mark. Let that sink in – we’re so upset about the resurgence of COVID cases because of the delta variant that we’re more upset than we were during the height of the pandemic (when the lowest print on this index was 71.8 in April last year). Mask mandates are being reinstated, hospitals across the south are reporting shortage of hospital beds again. It finally felt like we were on the other side and it seems like the worst “loljk” ever.
Moral of the story: Get vaccinated.