Weekly Economic Update: September 19, 2022

Inflation is still rising, albeit at a slower pace, according to the latest data out last week. This will likely support further interest rate increases from the Federal Reserve and worries of a resulting economic recession. Stocks retreated, culminating in the worst week since June. The Nasdaq suffered through its worst week since January after falling nearly 5.5%. The S&P 500, the Russell 2000, and the Dow lost at least 4.0%. The Global Dow also ended last week well in the red. Crude oil prices declined for a third consecutive week, while gold prices continued to slide, despite a bump higher at the end of the week. The dollar inched higher. Year to date, while all of the benchmark indexes listed here are well below their 2021 closing values, the Nasdaq has fallen nearly 27.0%.

Stocks closed lower last Thursday, with each of the benchmark indexes listed here losing value. While stock values declined, bond yields rose. The yield on 10-year Treasuries closed at 3.45%, while the two-year Treasury yield hit 3.87%, the highest rate since October 2007. The Nasdaq dropped 1.4%, the S&P 500 slid 1.1%, the Global Dow fell 0.8%, the Russell 2000 dipped 0.7%, and the Dow lost 0.6%. Crude oil prices fell nearly 3.7%, dropping to $85.18 per barrel. The dollar inched higher, while gold prices declined to $1,673.40 per ounce, the lowest price in over a year.

Equities fell last Friday after a major delivery service company announced weak quarterly results. The Russell 2000 (-1.5%) and the Global Dow (-1.1%) dipped the furthest, followed by the Nasdaq (-0.9%), the S&P 500 (-0.7%), and the Dow (-0.5%). The yield on 10-year Treasuries slipped 1.0 basis point to 3.44%. Crude oil prices rose by $0.15 to $85.25, the dollar was flat, while gold prices jumped $6.40 to $1,683.70 per ounce.

Last Week’s Economic News

• The latest data does not support the Federal Reserve scaling back its aggressive policies aimed at curbing inflation. The Consumer Price Index advanced 0.1% in August after being unchanged in July. Price increases were broad-based in August, with shelter, food, and medical care among the largest contributors. Those increases were mostly offset by a 10.6% decrease in gasoline prices. Other areas that declined last month included airline fares, communication, and used cars and trucks. Core prices, excluding volatile food and energy, rose 0.6% last month, higher than the 0.3% increase in July. For the 12 months ended in August, the CPI advanced 8.3%, down marginally from the 8.5% increase for the year ended in July. Core prices rose 6.1% for the 12 months ended in August, up from the 5.9% increase for the 12 months ended in July.

• Prices at the producer level fell in August for the second consecutive month. The Producer Price Index (a gauge of prices at the wholesale level) declined 0.1% last month after decreasing 0.4% in July. For the 12 months ended in August, producer prices have risen 8.7%, the lowest annual increase since August 2021. Prices for goods fell 1.2% in August, while prices for services rose 0.4%. Producer prices less food, energy, and trade services moved up 0.2% in August, and have increased 5.6% over the past 12 months. Pulling goods prices lower was a 6.0% drop in energy prices, led by a 12.7% decline in gasoline prices. Goods prices less foods and energy actually rose 0.2% last month.

• Both import and export prices declined in August. Import prices fell 1.0% last month after retreating 1.5% in July. Retail food and services sales for August rose 0.3% from the previous month and 9.1% above August 2021. Retail trade sales were up 0.2% in August and 8.9% over the past 12 months. Businesses that saw an increase in sales last month included motor vehicle and parts dealers; building material and garden equipment and supplies dealers; food and beverage stores; clothing and clothing accessories stores; sporting goods, hobby, musical instrument, and book stores; general merchandise stores; and food services and drinking places. Nonstore (online) retailers saw sales drop in August, as did gasoline stations, health and personal care stores, and furniture and home furnishing stores.

• Industrial production decreased 0.2% in August. Manufacturing output edged up 0.1% after increasing 0.6% in July. The index for mining was unchanged, while the index for utilities decreased 2.3%. Total industrial production in August was 3.7% above its year-earlier level.

• The national average retail price for regular gasoline fell to $3.690 per gallon. In the first half of 2022, U.S. exports of petroleum products averaged nearly 6.0 million barrels per day, or 11.0%, over the same period last year. According to the latest data from the U.S. Energy Information Administration, the increase in exports of petroleum products is the highest first half of the year exports since 1981.

• For the week ended September 10, there were 213,000 new claims for unemployment insurance, a decrease of 5,000 from the previous week’s level, which was revised down by 4,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended September 3 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended September 3 was 1,403,000, an increase of 2,000 from the previous week’s level, which was revised down by 72,000.

Eye on the Week Ahead

The August data for housing starts and existing home sales is available this week. The residential sector has slowed considerably from its torrid pace in 2021. Also, this week, attention is focused on the latest meeting of the Federal Open Market Committee. It is expected that the Committee will hike interest rates by 75 basis points as it attempts to temper rising inflation.

Have a nice week!

Sincerely,

Robert G. Carpenter