PM Images
It was a busy week for Wall Street in terms of economic data, with the focus on the Federal Reserve's favorite inflation gauge released on Friday. Notably, inflation expectations for next year from both the U.S. Conference Board and the University of Michigan fell to record lows. Last seen in 2020.
The overall weekly calendar painted a picture of weakness in the manufacturing sector but of a stronger U.S. economy, along with inflation that is coming under control. The data kept hopes alive for a soft landing and sets the stage for the Fed to begin easing monetary policy.
“It was another Goldilocks week for the U.S. economy, with slowing inflation indicators released alongside signs that economic activity in the third quarter is looking more robust,” said JPMorgan's Michael Feroli.
Friday’s July personal income and spending report garnered most of the attention. The U.S. Bureau of Labor Statistics said the core personal consumption expenditures (PCE) price index, widely considered the Federal Reserve’s preferred gauge of inflation, rose 0.2% month-on-month, unchanged from June and in line with estimates. On an annualized basis, the core PCE was flat at +2.6% for the third straight month.
On the inflation front, a monthly survey of consumer sentiment by the University of Michigan on Friday showed household inflation expectations for one year ahead came in at 2.8%, down from 2.9% in July and at their lowest level since December 2020. Meanwhile, the consumer sentiment index rose 2.3% month-on-month.
Earlier Tuesday, the Conference Board said average consumer inflation expectations for one year ahead fell to 4.9% in August, the lowest level since March 2020. Its overall confidence gauge also rose.
The second estimate of US economic growth in the second quarter released on Thursday also went a long way to calming investors' concerns about recession. The Bureau of Economic Analysis revised up real gross domestic product (GDP) growth to an annual rate of 3% from a previous reading of +2.8%.
The question now facing market participants is the magnitude of the rate cut the Federal Reserve will implement in September. According to the CME FedWatch tool, the probability of a 25 basis point cut is 70%, while the probability of a 50 basis point cut is 30%.
“Fed watchers continue to look for clues about the magnitude of the much-hyped September rate cut. This week's economic indicators, which came in well above expectations and reaffirmed a soft landing, provide limited insight. Next Friday's jobs report will largely determine the actions the FOMC takes at next month's meeting,” Wells Fargo said.
See below for a breakdown of the weekly economic calendar:
August 26th:
- New orders for manufactured durable goods rose $26.1 billion or 9.9% to $289.6 billion in July, the U.S. Census Bureau said.
- The Dallas Federal Reserve's survey of Texas-area manufacturing activity showed little growth in August.
August 27th:
- A key measure of U.S. home prices by S&P Corelogic Case-Shiller hit a new record high with a slowing trend for June.
- A similar measure of house prices by the Federal Housing Finance Agency fell 0.1 percent in June compared with May.
- The Richmond Federal Reserve's monthly survey showed manufacturing activity in the Fifth District slowed in August.
August 28th:
- Mortgage applications for the week ending Aug. 23 rose 0.5 percent from the previous week, according to data from the Mortgage Bankers Association.
- According to the Atlanta Federal Reserve's business uncertainty survey, businesses ranked monetary policy, fiscal policy and regulation as the issues of greatest concern ahead of the November election.
August 29th:
- The number of Americans filing initial claims for unemployment benefits last week fell by 2,000 to 231,000, U.S. Labor Department data showed.
- Pending home sales in July fell 5.5%, according to the National Association of Realtors, with all four U.S. regions covered posting monthly losses in transactions.
August 30th:
- The Institute for Supply Management said its survey of Chicago-area business activity rose 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 watch: (DIA), (DDM), (UDOW), (DOG), (DXD), (SDOW), (SPY), (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS), (SPXU), (QQQ), (QLD), (TQQQ), (QID), and (SQQQ).
