Last week brought mixed inflation news in the US: July’s core CPI inflation rate cooled to 2.5% y/y, its lowest since March 2021 (chart). However, July's comparable PPI rose 4.4%. Wednesday’s release of the July 28-29 FOMC meeting minutes should provide some insights on how Fed officials were assessing the outlook for inflation before these numbers were available.
Weekly unemployment claims (Thu), industrial production (Tue), and regional business surveys round out this week’s docket of domestic economic news, with flash PMIs closing out the week on Friday. Earnings season is quiet, with Walmart and Alibaba the only notable June-quarter reports scheduled for this week. We will also get some key economic data from overseas. Here’s more:
(1) FOMC meeting minutes. July's FOMC minutes (Wed) should reveal how split the committee was heading into last week’s inflation releases. The financial markets’ expectations for the committee’s next moves have shifted. The odds of a September hike in the federal funds rate has dropped to roughly a third from over 50% before the latest CPI and PPI prints. Federal funds rate futures as of August 14 implied 1.5 rate hikes over the next 12 months (chart).
(2) Unemployment insurance claims. Initial jobless claims climbed to 209,000 in the week ended August 7, snapping the streak of sub-200,000 readings, though the four-week average of 199,000 still points to a tight labor market (chart). Continuing claims for the week ending July 31 eased to 1,777,000, with the four-week average at 1,790,000. This week's report should show that layoffs remain low.
(3) Business surveys. July's regional business surveys from the NY and Philly Federal Reserve banks showed a sharp pickup in activity. The August surveys should confirm that business activity has picked up.
(4) Industrial production. Aggregate weekly hours in manufacturing edged up in July, suggesting that manufacturing output did the same (chart).
July's industrial production (Tue) follows June's report showing total output up just 1.1% y/y, even as real GDP goods growth ran much hotter at 4.8% in Q2 (chart). The two measures have diverged repeatedly since 2010, with GDP goods consistently outpacing industrial output.
(5) Global data dump. Overseas economic growth data lead the week ahead, with Japan's preliminary Q2 GDP and China's latest retail sales and industrial production both due Monday. Inflation readings follow, with Canada's CPI Monday and the UK's CPI/PPI and euro area CPI both Wednesday.
Global 10-year government yields have climbed broadly this year, with Australia’s and the UK’s near 5.00% and the US at 4.69%, against Germany’s 3.20% and Japan’s 2.88% (chart). This week's data will test how much further that repricing has to run. The Bank of Japan and the European Central Bank are expected to raise their respective policy rates in September.
