Pretty much every month there’s one week that has the most important economic reports. For the month of August that’s this week. The reports this week include consumer price inflation, producer prices, retail sales, industrial production, housing starts, and unemployment claims.
As it stands, it looks like the broader economy is decelerating as the tighter monetary policy of the past two years finally gains traction. The deceleration has taken longer than it normally does, probably due to the unusual nature of COVID lockdowns and reopening, the massive amount of monetary stimulus that preceded the tightening, plus the unusual expansion of the federal budget deficit last year, in spite of low unemployment and a Supreme Court decision on student loans that artificially reduced the official deficit last year.
In the past two weeks economic reports have included a decline in construction, slower job growth, and mixed ISM indexes, with manufacturing signaling contraction while the service sector remains slightly positive.
What’s likely for this week? It looks like both consumer and producer prices rose 0.2% in July, which would be welcome news compared to the higher average inflation rates of the past few years. If tighter money is gaining traction, these inflation rates should slow even further later this year. It doesn’t mean this trend will be permanent, though. Eventually the Federal Reserve will loosen once again, probably too much, and send inflation higher.
Meanwhile, retail sales and industrial production should bring mixed news. Due to a bounce back in auto sales in July, after the technology-related snafus at auto-dealers in June, total retail sales should be up for the month. However, even if they grow the 0.5% we expect, that would leave them up only 2.5% from a year ago, barely treading water versus inflation.
