Weekly U.S. economic data roundup: Year-ahead inflation expectations at 2020 levels

Last week was a busy week for Wall Street in terms of economic data, with the Federal Reserve’s preferred inflation gauge coming in the spotlight on Friday. Notably, inflation expectations for the coming year from both the Conference Board and the University of Michigan dropped to 1.3%. Last seen in 2020.

The weekly docket showed weakness in manufacturing but stronger U.S. economic data, with inflation more in check. The data kept hopes of a soft landing alive and set the stage for the Federal Reserve to begin easing monetary policy.

“It was another golden week for the U.S. economy, with signs of slowing inflation alongside signs that economic activity in the third quarter is looking more robust,” said Michael Feroli of JPMorgan Chase.

The personal income and spending report released last Friday grabbed most of the attention. The US Bureau of Labor Statistics said the core personal consumption expenditures (PCE) price index – widely seen as the Federal Reserve’s preferred inflation gauge – rose 0.2% on a monthly basis, unchanged from June and in line with estimates. On a yearly basis, the core PCE index held steady at +2.6% for the third straight month.

Speaking of inflation, the University of Michigan’s monthly survey of consumer sentiment released Friday showed households’ annual inflation expectations at 2.8%, down from 2.9% in July and the lowest since December 2020. Meanwhile, the consumer sentiment index rose 2.3% on a monthly basis.

Earlier Tuesday, the Conference Board said consumer expectations for one-year inflation fell to 4.9% in August, the lowest level since March 2020. The organization’s overall confidence index also rose.

The second estimate of U.S. economic growth in the second quarter, released on Thursday, also helped calm investors’ fears of a recession. The Bureau of Economic Analysis revised real GDP growth to an annual rate of 3% from a previous reading of +2.8%.

The question facing market participants now is how much the Fed will cut rates in September. According to the CME FedWatch tool, the odds of a 25 basis point rate cut are 70%, while the odds of a 50 basis point rate cut are 30%.

“Fed watchers are still looking for clues on the size of the well-announced September rate cut. This week’s set of economic indicators, which generally beat expectations and confirmed a soft landing, offer only limited insight. Friday’s employment report will go a long way toward determining what the FOMC will do at next month’s meeting,” Wells Fargo said.

Below is a breakdown of the weekly economic calendar:

August 26:

• New orders for durable manufactured goods rose $26.1 billion, or 9.9 percent, to $289.6 billion in July, the U.S. Census Bureau said.
• The Dallas Federal Reserve Bank’s survey of manufacturing activity in the Texas region showed little growth in August.

August 27:

• A key gauge of U.S. home prices, measured by the Standard & Poor’s CoreLogic Case-Shiller Index, hit an all-time high with a slowing trend in June.
• A similar measure of home prices released by the Federal Housing Finance Agency fell 0.1% in June from May.
• The monthly survey from the Federal Reserve Bank of Richmond showed manufacturing activity in the Fifth District slowed in August.

August 28:

• Mortgage applications rose 0.5% from the previous week, according to data from the Mortgage Bankers Association, during the week ending Aug. 23.
• According to the Atlanta Federal Reserve Bank’s survey of business uncertainty, in light of the November election, companies ranked monetary policy, tax policy and regulation as the issues of greatest concern.

August 29:

• The number of Americans filing initial claims for unemployment benefits last week fell by about 2,000 to 231,000, Labor Department data showed.
• Pending home sales fell 5.5% in July, according to the National Association of Realtors, with all four U.S. regions reporting monthly losses in transactions.

August 30:

• The Institute for Supply Management said its survey of business activity in the Chicago area rose slightly in August, but remained in contraction territory for the ninth straight month.

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