Author: admin

The first full week of August started off slow but finished with a bang as Consumer Price Index (CPI) and Price Producer Index (PPI) figures were released on Thursday and Friday. The University of Michigan also released its consumer sentiment and inflation expectation figures for the previous month on Friday morning.

As expected, CPI increased on an annual basis to 3.2 percent in July, which was slightly lower than the 3.3 percent forecast by economic experts prior to the release. On a monthly basis, both CPI and Core CPI figures increased by .2 percent, in line with expectations. It was reported that higher gas and housing prices were largely responsible for the uptick in inflation the previous month. In July, it was revealed that inflation had increased by 3 percent on an annualized basis during the month of June.

During the month of July, Core PPI increased by .3 percent while the overall cost of goods also rose by .3 percent. This was higher than the expected increase of .2 percent for both core and overall prices. An increase in the cost of services was cited as the reason for the higher numbers.

The University of Michigan Consumer Sentiment Index fell in July to 71.2 from 71.6 in June. However, it was also revealed that consumers expected the inflation rate this time next year to be 3.3 percent compared to 3.4 percent a month ago. There has been anecdotal evidence in recent weeks that consumers have been changing their spending habits in response to increasing prices and a possible recession.

These figures seem to indicate that consumers may be taking a more cautious approach about the future. According to a poll from IBD/TIPP, less than one out of every five respondents said that their wages were keeping up with inflation.

It’s also worth noting that members of the Federal Reserve are also unsure if a recession can be avoided. Mary Daly, a member of the Federal Reserve, said on Thursday that although inflation figures are going in the right direction, core inflation is still too high. Other members of the Fed have also said that core inflation is too high and that future interest rate decisions will be made based on the data moving forward.

The Federal Open Market Committee (FOMC) will hold its next meeting in September, and there is a clear split between those within the Fed who feel that another rate hike is coming and investors who feel that the Fed will hold the line. Currently, the Fed Funds Rate is between 5.25 percent and 5.5 percent, which is the highest since 2007.

The Dow 30 was held within a relatively tight range this week as it meandered between a low of 35,053 and a high of 35,550. It would hit the low on Tuesday, reach the high on Thursday and then spend most of Friday doing little of note. Ultimately, the Dow would close down .15 percent for the week, which was a loss of 53 points from Monday’s open.

Unlike the Dow, the Nasdaq moved quite a bit this week as it gave up nearly 350 points to close at 13,644. That was a loss of about 2.5 percent over the last five trading days. On Monday, the market opened at its weekly high of 13,987 before moving almost straight down on Tuesday, Wednesday and Thursday. On Friday, the Nasdaq reached its low of the week at 13,614 before easing back up to its final closing price.

Finally, the S&P 500 would open the week at 4,498, reach its high on Wednesday at 4,523 and would hit its low of 4,448 on Friday morning. The index would finish the week at 4,464, which was a loss of .83 percent over the last five trading days.

Next week, retail sales data is set to be released on Tuesday while FOMC meeting minutes from July’s gathering will be made public on Wednesday. On Thursday, unemployment claims data for the week will be revealed. Manufacturing data from New York and Philadelphia will also be made public this coming week.

On Monday, the Chicago Purchasing Managers Index (PMI) was released and came in at 42.8 percent, which indicates that economic conditions in one of the largest cities in America are contracting. The index was expected to come in at 43.3 percent, which would still have indicated that economic conditions were softening in that part of the country.

On Tuesday, the national manufacturing PMI numbers were released, and that survey came back at 46.4 percent, which was lower than the expected 46.9 percent. In addition, manufacturing prices PMI data was made available and came in at 42.6 percent compared to an expected 43.8 percent. The Job Openings and Labor Turnover Survey (JOLTS) report was also released that day, and it revealed that there were 9.68 million available positions in the United States.

On Wednesday, the ADP nonfarm employment change report was released, which is the precursor to the Bureau of Labor Statistics (BLS) report that was issued on Friday. The report from ADP found that the economy added 324,000 new jobs in the last month, which was higher than the expected 191,000 new jobs. Initially, it was believed that such a robust figure could open the door to additional rate hikes in the coming months.

However, that speculation would be dashed as new data came in on Thursday and Friday. Thursday saw the reveal of the services PMI report, which came in at 52.7 percent compared to 53.1 percent predicted by analysts prior to the release. Furthermore, unemployment claim data was released on Thursday morning, and the report revealed that 227,000 people had applied for benefits in the past week. This was compared to 221,000 a week ago and was also higher than the 226,000 claims analysts had expected to be filed in the past seven days.

Friday saw the release of the BLS nonfarm payroll report as well as monthly earnings and unemployment figures. In July, the economy added 187,000 jobs, which was lower than the 205,000 predicted by experts prior to Friday morning. It was also announced that June data was revised downward to 187,000 new jobs added from 209,000 when the report was first issued on July 7.

The unemployment rate dropped from 3.6 percent to 3.5 percent despite expectations that the number would remain the same. Average monthly earnings increased by .4 percent as opposed to the expected .3 percent. This means that there is still pressure on employers to continue hiking wages to compete in a historically tight labor market.

However, a slowdown in hiring has led some to say that the Fed should elect to keep rates where they are in September as opposed to an additional hike. The Fed Funds Rate is currently in a range between 5.25 percent and 5.5 percent. In addition, data indicates that most jobs are classified as part-time, which means that workers will make less overall even if they are paid slightly more per hour worked.

The S&P 500 was down 2.48 percent this week to finish at 4,478. On Monday, the market hit a high of 4,588 and remained steady on Tuesday. However, Wednesday saw the S&P 500 tumble to a weekly low of 4,486 that held until the end of the trading day on Friday.

As with the S&P 500, the Nasdaq was a net loser this week as it lost 3.11 percent over the last five trading days. It hit its high on Monday afternoon at 14,348 before hitting its low of the week on Thursday at 13,887. The market would rebound slightly on Friday to finish at 13,909.

Compared to the Nasdaq and S&P, the Dow had relatively smaller losses, finishing down a mere 1.28 percent at 35,065. The Dow would hit its high of the week on Tuesday morning at 35,657 and would continue to grind lower until the end of the trading day on Friday.

Over the coming days, investors will be awaiting the release of monthly and yearly Consumer Price Index (CPI) and monthly Producer Price Index (PPI) figures. It is believed that CPI on an annualized basis will increase to 3.3 percent from 3 percent in July while monthly CPI will increase by .2 percent. Prices are expected to have increased .2 percent since last month.