Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices rose last week, as investors were encouraged by inflation data that indicated price pressures had cooled in July. The benchmark S&P 500 Index was higher for a fourth straight week, gaining 3.3% in total return. The tech-heavy Nasdaq Composite rose 3.1% and the blue-chip Dow Jones Industrial Average rose 3.0% for the week. Yields were little changed, with the 10-year U.S. Treasury yield ending the week at 2.83%. The U.S. dollar weakened versus major peers and oil increased.
The four-week winning streak for stocks is the longest since November. Peak inflation was a major theme, as data showed softening price pressures. The consumer price index (CPI) was unchanged in July from a month earlier, better than expectations for a modest increase and the lowest reading since May of 2020. On a year-over-year basis, CPI was still up 8.5% but this pace was down from 9.1% in June. Core consumer prices, a measure that strips out volatile food and energy prices, rose 5.9% year-over-year. The producer price index (PPI) surprisingly fell a half a percent for the month, another encouraging sign that peak inflation may be behind us. Several Federal Reserve officials reiterated that there is more work to be done on inflation and more interest rate hikes are still to come.
In other economic news, U.S. nonfarm productivity fell at a 4.6% annualized rate in the second quarter, a second straight quarterly decline though a more modest pace than the first quarter. Unit labor costs rose at a 10.6% rate during the period, down from 12.8% in the first quarter. The National Federation of Independent Business said confidence among small business owners edged higher in July. Inflation concerns remained a key issue for owners, but job openings became somewhat easier to fill compared to the prior month.
In the week ahead, the economic calendar includes July retail sales, housing data, industrial production and minutes from the Federal Reserve’s latest meeting. The Fed minutes may provide some clues on the size of the next rate hike, expected to be a half a percent or three quarters of a percent. Several major retailers report earnings results and investors will look for commentary around inflation, inventories and margins.
As always, we’ll be watching and reporting back to you. Thank you.