Inflation Moderates While Business Sentiment Stays Hot: October 8 – 12

Consumer prices grew less quickly while wholesale prices firmed in September. Here are the five things we learned from U.S. economic data released during the week ending October 12.

#1Consumer prices cooled during the last days of summer. The Bureau of Labor Statistics tells us that the Consumer Price Index (CPI) inched up 0.1 percent on a seasonally adjusted basis in September following two consecutive months of 0.2 percent gains. Energy prices dropped 0.5 percent, pulled down by price decreases for utility delivered gas (-1.7 percent), electricity (-0.5 percent), and gasoline (-0.2 percent). Food prices were unchanged. Net of energy and food, core CPI increased 0.1 percent during the month. Falling were prices for vehicles—both used cars/trucks (-3.0 percent) and new vehicles (-0.1 percent)—and medical care commodities (-0.1 percent). Prices increased for apparel (+0.9 percent), transportation services (+0.5 percent), shelter (+0.2 percent), and medical care services (+0.2 percent). CPI has risen 2.3 percent over the past year while core CPI has a 12-month comparable of +2.2 percent.Consumer Prices Mar-Sep 18 101218

#2…But wholesale prices rebounded. The Producer Price Index (PPI) for final demand grew for the first time in three months with a seasonally adjusted 0.2 percent increase, per the Bureau of Labor Statistics. The core measure—PPI less energy, food, and trade services, jumped 0.4 percent for its largest increase since January. Final demand PPI for goods slipped 0.1 percent, pulled down by significant declines in both energy and food prices. PPI for goods net energy and food gained 0.2 percent. PPI for final demand services jumped 0.3 percent (its biggest gain since June), fueled by a 1.8 percent bounce in wholesale prices for transportation/warehousing services. Over the past year, the headline PPI measure had grown 2.6 percent while the 12-month comparable for core wholesale prices has surged 2.9 percent.

#3Small business owner optimism remained new record highs in September. The Small Business Optimism Index from the National Federation of Independent Business lost 9/10ths of a point during the month (giving back exactly what it had gained in August) to lead the index at a seasonally adjusted 107.9 (1986=100). Six of ten index components pulled back from their August readings, including a seven-point drop for plans to increase inventories and three-point decreases for indices tied to plans to increase employment and make capital outlays. Only three index components improved during the month: expected real sales (up three points), current inventories (up two points), and expected credit conditions. The press release noted that small business owners were indicating that “business is booming and prospects continue to look bright.

#4Wholesalers expanded their inventories more rapidly during August. The Census Bureau reports that merchant wholesalers inventories swelled 1.0 percent during the month to a seasonally adjusted $642.7 billion. This left wholesale inventories 5.3 percent larger than what it was a year earlier. Durable goods wholesale inventories grew 0.9 percent while that of nondurables rose 1.2 percent. The former was boosted by sharp increases in the automotive (+3.5 percent), computer equipment (+1.6 percent), and hardware (+1.0 percent) sectors. Wholesale inventories of nondurables expanded thanks to substantial increases for farm products (+4.9 percent), chemicals (+2.2 percent), and drugs (+2.1 percent). Wholesale sales rose 0.8 percent in August to a seasonally adjusted $511.1 billion (+9.2 percent versus August 2017). The resulting inventory-to-sales ratio of 1.26 matched that of July but was down four basis points from a year earlier.

#5Layoffs remained near multi-decade lows. The Department of Labor indicates the first-time claims for unemployment insurance benefits grew by 7,000 during the week ending October 6 to a seasonally adjusted 214,000. Even with the modest increase, initial jobless claims remained 27,000 below that of a year earlier. The four-week moving average inched up by 2,500 to 209,500 claims. This was 16.9 percent below the year-ago moving average and just above the 49-year low achieved just a few weeks ago. 1.422 million people were receiving some form of unemployment insurance benefits during the week ending September 22, 14.0 percent below the count from the same week a year earlier.

Other U.S. economic data released over the past week:
University of Michigan Surveys of Consumer (September 2018—preliminary, Index of Consumer Sentiment): 99.0 (vs. August 2018: 100.1, vs. September 2017: 100.7).
Import Prices (September 2018, Import Prices, not seasonally adjusted): +0.5 % vs. August 2018, +3.5% vs. September 2017. Nonfuel imports: Unchanged vs. August 2018, +0.6% vs. September 2017.
Export Prices (September 2018, Export Prices, not seasonally adjusted): Unchanged vs. August 2018, +2.7% vs. September 2017. Nonagricultural exports: +0.2% vs. August 2018, +3.3% vs. September 2017.

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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