Week in Review: September 15, 2023

September 15, 2023

Recap & Commentary

Markets ended the week little changed as investors digested a spate of economic data, including the most recent inflation readings, as they awaited the Fed’s upcoming September meeting.

Headline inflation readings at both the consumer and producer levels reaccelerated in August, led by further increases in food and shelter prices and a rebound in energy prices. Core consumer inflation, to which the Fed is more attuned, continued to slow but at 4.3%, remains over twice the Fed’s longer-term target of 2.0%. The readings were not enough to shift current market expectations that the Fed will refrain from another interest rate hike at its upcoming meeting. Importantly, the Fed will provide updated projections at the conclusion of its meeting which could influence market expectations regarding future monetary policy actions.

Across the pond, the European Central Bank (ECB) raised rates by another 0.25% to 4.0%, the highest level since the introduction of the Euro in 1999.  And while the ECB also increased its inflation forecast for next year, it signaled that it is likely done with any additional hikes stating that it believes the current level of interest rates if “maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”

Economic Commentary

Headline consumer inflation (CPI) rose 0.6% in August, in line with consensus expectations.  Compared to a year ago the CPI rose by 3.7%.  The month over month increase was largely driven by a 5.6% increase in energy prices.  Prices for food were little changed, increasing by 0.2%.  Core CPI, which excludes these categories, increased 0.3% in August against expectations for a 0.2% gain, and 4.3% since last year.  The year over year measure had been at 4.7% in July’s reading.  Shelter increased 0.3% and was the second largest contributor to the increase in CPI, trailing only the surge in gasoline prices.  It was the largest contributor to the increase in core CPI and the 40th straight month of gains for the category.

On the producer side, costs rose 0.7% against expectations for a 0.4% increase in August.  This was the fastest monthly acceleration since June 2022. Final demand goods increased 2%, with 2/3 of that increase attributable to surging gasoline costs during the month. Other areas of the report were more encouraging.  Final demand services increased 0.2% in August after a 0.5% increase in July. Core PPI was in line with expectations rising only 0.2% in August, slightly slower than July’s monthly increase.

Retail sales rose 0.6% in August, well above expectations for a 0.1% increase.  Again, much of the headline number was attributable to higher gas prices.  After removing the auto and fuel categories, sales only rose by 0.2%.  Total sales in August were up 2.5% since last year, a marked decline from January when year over year sales had increased by 6.4%.

Of Note

Autoworkers at The Big Three- Ford, GM, and Stellantis (Chrysler)- officially went on strike after negotiations between the manufacturers and United Auto Workers (UAW) union failed to reach an agreement. The strike marks the first time UAW workers at all three companies have gone on strike at the same time.

Market Indices   (As of 09/15/2023)

• Housing Starts
• Existing Home Sales
• Manufacturing PMI
• Services PMI
• Weekly Jobless Claims