Contradictions

The “Yes, but” economic data releases continued last week.

The Consumer Price Index growth rate increased in August from July and over the last year. But that of the core measure, which excludes volatile food and energy costs, actually decreased, slipping from 4.7% to 4.3% year-over-year. The decline is more pronounced over the last three months, falling from 3.1% to 2.4%. Acting like a fine-toothed comb, core CPI perhaps provides a better measure of current conditions. But—and there always seems to be a “but”—the August increase was more broad-base.

August retail sales were stronger than expected, but those for June and July were revised lower. Boosted by higher gasoline prices, total sales rose 0.6% and core sales (excluding volatile autos, building materials and gasoline) rose 0.1%, also above expectations. At 220,000, weekly jobless claims were in-line with last week’s figure but industrial production in August rose more than expected, up 0.4% after a 0.7% gain in July.

Against this backdrop, the University of Michigan Consumer Sentiment survey eased lower. Respondents’ views of current conditions slid, while their positive expectations for the future increased. The survey indicated many consumers are not only aware inflation has slowed, but also have noted that the pace of the decline is slowing. That’s giving rise to poorer buying conditions for big-ticket items. Year-ahead and longer-term inflation expectations fell nearly back to pre-pandemic levels. But balancing this gain were respondents’ views that household income would rise only 1.7% over the next year, and unemployment would rise. 

The raft of contradictions give the Federal Reserve much to ponder when it meets on September 20.