9/15 - Weekly Economic Highlights

Economic data released this week provided the Federal Reserve with key information to digest before their upcoming meeting on September 20^th. The August Consumer Price Index (CPI) came in slightly higher than expected, with the headline CPI up 0.6% month-over-month and 3.7% year-over-year, accelerating from 3.2% year-over-year in July. The Core CPI, excluding food and energy, was also up 0.3% from July and increased 4.3% year-over-year, down from 4.7% last month.  Surging energy prices accounted for over half of the total CPI monthly increase. Shelter was the largest contributor to the Core CPI gains, up 7.3% year-over-year. Other contributors to the CPI gain included motor vehicle insurance, airline fares, personal care, and new vehicles.

The Producer Price Index - Final Demand (PPI) also came in above expectations. The headline index rose 0.7% on the month and 1.6% year-over-year. Excluding food and energy, the PPI-Final Demand rose 0.2% on the month, for a 12-month gain of 2.2%. The Core index, which also excludes trade services, increased 0.3% on the month, and 3.0% year-over-year. The cost of gasoline surged 20%, accounting for much of the gain in August. West Texas Intermediate rose to about $90 per barrel, as OPEC+ extended supply cuts and consumer demand remained robust.

Retail Sales rose 0.6% in August, exceeding the consensus forecast. Sales of motor vehicles and higher gasoline prices drove greater than expected gains. However, Control Group Sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations, rose just 0.1%, the smallest advance in five months. While the consumer has been resilient, weaker Control Group Sales may reflect dwindling excess savings, rising credit card balances, and a softening labor market. 

Also this week, the European Central Bank raised its key deposit rate for the tenth consecutive time by another 25 basis points to a record high 4.00% in order to bring elevated inflation back to target. President Christine Lagarde signaled a possible shift that could mean the peak has been reached. The decision is the first of several across developed economies over the coming days. The Federal Reserve is meeting on September 20^th and is expected to pause and signal that rates will remain higher for longer while remaining data dependent.

US Treasury rates remained rangebound this week, with the 2-year US Treasury up approximately 3 basis points to 5.02%, the 5-year up 3 basis points to 4.43%, and the 10-year up 4 basis points to 4.31% as of this morning. The yield curve inversion between the 2-year Treasury and 10-year treasury stayed relatively stable at 71 basis points. The FOMC meeting will be the key focus for investors next week.

FOMC Rate Decision, Housing Starts, Building Permits, NAHB Housing Market Index, MBA Mortgage Applications, Jobless Claims, Philadelphia Fed Business Outlook, Existing Home Sales, Leading Index, S&P Global PMI

Copyright © 2023. All Rights Reserved

© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.