PM Images
It was a busy week for Wall Street in terms of economic data, with the spotlight on the Federal Reserve’s favorite inflation gauge released Friday. Of note, year-ahead inflation expectations from both the U.S. Conference Board and the University of Michigan fell to levels last seen in 2020.
The overall weekly calendar painted a picture of weakness in manufacturing but a larger strength in the U.S. economy, along with inflation coming further into control. The data kept soft landing hopes buoyed and sets the stage for the Fed to begin monetary policy easing.
“It was another week of Goldilocks for the U.S. economy, with cooling inflation indicators being released alongside signs that economic activity in the third quarter is looking more robust,” JPMorgan’s Michael Feroli said.
Friday’s July personal income and outlays report grabbed most of the attention. The U.S. Bureau of Labor Statistics said that the core personal consumption expenditures (PCE) price index – widely seen as the Fed’s preferred inflation gauge – rose 0.2% M/M, unchanged from June and in-line with estimates. On an annual basis, core PCE remained steady at +2.6% for a third straight month.
Speaking of inflation, a monthly survey on consumer sentiment by the University of Michigan on Friday showed households’ one-year inflation expectations at 2.8%, down from 2.9% in July and at its lowest level since December 2020. Meanwhile, the consumer sentiment index edged up 2.3% M/M.
Earlier on Tuesday, the Conference Board said consumers’ average one-year inflation expectations dropped to 4.9% in August, the lowest since March 2020. Its gauge of overall confidence also ticked up.
The second estimate of U.S. economic growth in the second quarter released on Thursday also went a long way in assuaging investors’ recession concerns. The Bureau of Economic Analysis revised upward real gross domestic product (GDP) growth to an annual rate of 3% from an earlier reading of +2.8%.
The question facing market participants now is the size of the interest rate reduction that the Fed will deliver in September. According to the CME FedWatch tool, the odds of a 25 basis point cut stands at 70%, while that of a 50 basis point cut is at 30%.
“Fed watchers are still on the lookout for clues on the size of the well-telegraphed September rate cut. This week’s economic indicator lineup, which broadly beat expectations and reaffirmed a soft landing, provides limited insight. Next Friday’s employment report will go a long way toward determining the actions taken by the FOMC at next month’s meeting,” Wells Fargo said.
See below for a breakdown of the weekly economic calendar:
August 26:
- Manufactured durable goods new orders increased $26.1B or 9.9% to $289.6B in July, the U.S. Census Bureau said.
- The Dallas Fed’s survey of manufacturing activity in the Texas area showed little growth in August.
August 27:
- A key measure of U.S. home prices by S&P Corelogic Case-Shiller reached a new all-time high with a decelerating trend for June.
- A similar measure of house prices by the Federal Housing Finance Agency inched down 0.1% in June from May.
- Richmond Fed’s monthly survey showed Fifth District manufacturing activity slowing in August.
August 28:
- For the week ending August 23, mortgage applications rose 0.5% from one week earlier, according to data from the Mortgage Bankers Association.
- As per the Atlanta Fed’s survey of business uncertainty, looking ahead to the November elections, firms ranked monetary policy, tax policy, and regulation as the issues of highest concern.
August 29:
- The number of Americans filing for initial jobless claims in the past week fell 2K to 231K, U.S. Department of Labor data showed.
- Pending home sales in July retreated 5.5%, according to the National Association of Realtors, with all four U.S. regions covered posting monthly losses in transactions.
August 30:
- The Institute for Supply Management said its survey of business activity in the Chicago area moved up marginally in August, but remained in contraction territory for the ninth straight month.
For investors looking to track Wall Street’s three major averages, here are some exchange-traded funds to follow: (DIA), (DDM), (UDOW), (DOG), (DXD), (SDOW), (SPY), (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS), (SPXU), (QQQ), (QLD), (TQQQ), (QID), and (SQQQ).
