Hello, my friends!
It likely comes as no surprise that the week’s most eagerly anticipated data was generated by yet another inflation gauge: the personal consumption expenditures (PCE) price index, known to be the Federal Reserve’s preferred measure of inflation because of how (relatively) well it accounts for changes in consumer behavior.
On Friday, the Commerce Department revealed the PCE numbers for July, which showed that while inflation remains well moderated from the near-10% levels at which it sat three years ago, price pressures may be reenergizing because of President Trump’s aggressive tariff policy.
According to the government’s report, the headline, or all-items, PCE index climbed at an annual rate of 2.6%, equal to the pace set in June; as for the core index, which strips out volatility-prone food and energy prices, that accelerated 0.1 percentage point to land at 2.9%…the fastest rate for core PCE since February.
For now, the prospect of a tariff-induced inflation spike doesn’t seem to be much of a cause for concern on Wall Street. Markets were relatively unmoved by Friday’s numbers and closed out August solidly higher from where they started: the Dow Jones Industrial Average surged 3% higher for the month, while the S&P 500 and tech-heavy Nasdaq Composite rose 2% and 1.6%, respectively.
Expectations for an interest rate cut in September weren’t dimmed by the inflation figures, either, with traders still seeing a 90% chance the Federal Reserve resumes rate reductions next month.
In other news of note this week:
Durable Goods Orders Rise…and Fall…in July
The Commerce Department reported on Tuesday that orders for durable goods – products made to have an average life of three years – fell 2.8% in July, due largely to weak sales of commercial aircraft; new orders for planes…primarily from Boeing…tumbled a whopping 32.7% last month.
But a closer look at the numbers reveals that the current state of product orders, overall, may not be as unfortunate as the headline metric suggests.
For one thing, that near-3% decline is better than the 4% drop economists had expected, and much improved over the 9.4% drop recorded in June.
Beyond that, a look at last month’s activity sans notoriously volatile sectors reveals durable goods orders actually grew at a solid pace in July.
For example, durable goods order ex. transportation climbed 1.1% last month. And so-called core capital goods orders, which exclude both transportation and defense, also surged a relatively robust 1.1%. That’s a big turnaround from June, which saw orders for core capital goods tumble 0.6%.
Indeed, some observers view July’s growth in core capital goods orders…considered a proxy for business investment in equipment…to be evidence that companies could be thriving in spite of tariff distress.
As Stephen Stanley, chief economist at Santander Capital Markets, said in a note:
“Despite overwhelming anecdotal commentary suggesting that many companies put their investment projects on hold as they sought to navigate the choppy waters caused by policy-related uncertainty, the data show that firms have in fact continued to invest at a reasonably healthy pace.”
Key Regional Data Underscores Pervasive U.S. Manufacturing Weakness
Also making news this week were a couple of key regional gauges of U.S. economic health, both of which underscored the manufacturing-sector weakness which has been evident in national gauges such as those from S&P Global and the Institute for Supply Management.
On Monday, the Federal Reserve Bank of Dallas reported that the index derived from its Texas Manufacturing Outlook Survey – a monthly assessment of factory activity in the Lone Star state – fell back into contraction this month after landing in expansion territory last month for the first time all year.
According to the Dallas Fed, the survey’s index for general business activity declined to -1.8 in August from 0.9 in July. Readings below zero imply contraction in the manufacturing sector, while those above zero imply that the sector is expanding.
Of particular note was the decline in the survey’s Production Index…a component measure of the broader metric…which tumbled nearly 30% this month. Noteworthy, as well, is the number of survey respondents who said they’d been negatively impacted by tariffs this year: roughly 70%.
“Tariffs and the continuous contradictory, knee-jerk announcements that are a complete change in governmental/regulatory policy [are issues of concern],” said one manufacturer, while another made this ominous declaration:
“We are probably going out of business within 90 days.”
The following day, Tuesday, the Richmond Fed chimed in with its update on manufacturing conditions in the Mid-Atlantic states, noting that activity in August continued to reflect the persistent weakness which has been characteristic of the region for months.
According to the report, the composite index derived from what’s known as the Fifth District Survey of Manufacturing Activity did rise 13 points in August. However, the metric remained squarely in negative territory because of how low it was the month before. The index landed at -20 in July, which is why August’s sizable point gain was able to push the gauge no higher than to -7 this month.
Unsurprisingly, all three of the overall measure’s component indexes followed the same pattern in August, rising substantially from July’s readings but nevertheless remaining in negative territory: The Shipments Index increased to -5 from -18; the New Orders Index rose to -6 from -25; and the Employment Index climbed to -11 from -16.
Consumer Confidence Index Lands in “Pessimism” Territory for Sixth Consecutive Month
Finally this week, a widely followed gauge of consumer sentiment revealed little change in Americans’ uncertain outlook for the economy, more broadly, as well as for their own personal economic fortunes.
On Tuesday, The Conference Board reported that its proprietary Consumer Confidence Index (CCI) came in at a reading of 97.4 this month. Although that’s just modestly below the upwardly revised 98.7 posted in July, August marks the sixth straight month the index landed below the neutral reading of 100. CCI measures below 100 imply greater pessimism, overall, among Americans.
The story was largely the same with the Expectations Index, a component measure of the headline metric that evaluates consumers’ six-month outlook for the economy.
In August, the Expectations Index also saw a small decline, ticking down 1.2 points to 74.8. But while the magnitude of change was relatively slight, the reading marked another month in which the subindex landed below the critical level of 80, a threshold which implies recession could lie ahead.
Stephanie Guichard, senior economist at The Conference Board, said in a statement that concerns over the potential impacts of White House trade policy continue to weigh heavily among consumers, noting:
“Consumers’ write-in responses showed that references to tariffs increased somewhat and continued to be associated with concerns about higher prices. Meanwhile, references to high prices and inflation, including food and groceries, rose again in August. Consumers’ average 12-month inflation expectations picked up after three consecutive months of easing and reached 6.2% in August—up from 5.7% in July but still below the April peak of 7.0%.”
Anxiety over the outlook for the labor market remains prominent among Americans, as well, with Guichard also emphasizing that “consumers’ appraisal of current job availability declined for the eighth consecutive month.”
Persistent pessimism in consumers’ view of the economy can be a key consideration of Fed policymakers who are weighing how to proceed with possible changes to interest rates. Some observers, like renowned investor Louis Navellier, believe the chronic pessimism which now characterizes consumer sentiment effectively demands that Fed policymakers resume rate reductions.
“It is imperative that the Fed cuts key interest rates and continues to cut in the upcoming months to bolster consumer sentiment and avoid a recession,” Navellier said recently.
That’s it for now; have a marvelous weekend!
This post is created and published for general information purposes only. The Gold Strategist blog disclaims responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.
The Gold Strategist 