Newsletter - 08/15/2022
Week of August 8, 2022 in Review
Both producer and consumer inflation were cooler than estimates last month, while Initial Jobless Claims moved higher once again. Here are last week’s key headlines:
- Consumer and Producer Inflation Cooler Than Expected in July
- Decline In Import Prices Also Signals Cooling Inflation
- Inflation Remains Top Problem for Many Small Businesses
- Initial Jobless Claims Continue to Tick Higher
Consumer and Producer Inflation Cooler Than Expected in July
The Consumer Price Index (CPI), which measures inflation on the consumer level, showed that inflation was flat in July. This was lower than the 0.2% increase expected. Note that a flat or 0.0% reading doesn’t mean inflation fell in July, but rather there was no increase in inflation in July from June. On an annual basis, inflation declined from 9.1% to 8.5%, also lower than estimates. Core CPI, which strips out volatile food and energy prices, also came in below estimates.
The Producer Price Index (PPI), which measures wholesale inflation, also fell 0.5% in July, coming in much lower than the 0.2% gain expected. The drop in gasoline prices accounted for much of the decline in this headline reading.
What’s the bottom line? To help cool inflation, the Fed has been hiking its benchmark Fed Funds Rate, which is the interest rate for overnight borrowing for banks, and it is not the same as mortgage rates.
The Fed will be closely watching August’s inflation and employment reports when they’re released in early September ahead of its meeting, as these will also play an important role in their decision.
Decline In Import Prices Also Signals Cooling Inflation
Import prices were down 1.4% last month, which is the first decline since December and another sign that inflation is at least starting to subside a bit. A big reason for this is how strong the dollar is, compared to other currencies. Because of the strength in the dollar, we are importing less inflation.
The dollar is strong compared to other currencies because the Fed has had the first jump on hiking rates, and they have done more hikes than many other countries. However, it’s unclear how long this will last, as other central banks are beginning to catch up and do more rate hikes.
Inflation Remains Top Problem for Many Small Businesses
The National Federation of Independent Business Small Business Optimism Index was reported at 89.9 for July, up a touch from the 89.5 seen in June that was the lowest since January 2013. Among the takeaways, 37% of small business owners reported that inflation remained their top problem. This is the highest level since 1979, so July’s cooler-than-expected inflation readings could be welcome news.
What’s the bottom line? Bill Dunkelberg, NFIB’s chief economist, noted, "The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages and supply chain disruptions.”
Initial Jobless Claims Continue to Tick Higher
Initial Jobless Claims increased by 14,000 in the latest week, as 262,000 people filed for unemployment benefits for the first time. However, the number of Initial Claims filed in the prior week was revised lower by 12,000, which tempers some of the latest increase. Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, rose 8,000 to 1.428 million.
What’s the bottom line? The 4-week average of Initial Jobless Claims moved up once again to its highest level since late November. The trajectory higher is likely to continue, given the announcements of significant layoffs from several public companies, which means we will eventually see a higher unemployment rate.
What to Look for This Week
Housing news dominates the headlines this week, beginning Monday with the National Association of Home Builders Housing Market Index, which will give us a near real-time read on builder confidence for this month. On Tuesday, Housing Starts and Building Permits for July will be released. July’s Existing Home Sales follows on Thursday.
Mortgage Bonds are continuing to trade in a narrow range between support at the 25-day Moving Average and overhead resistance at the 100-day Moving Average. Going back to mid-June, Bonds have created a pennant formation, which is narrowing and squeezing Bonds. Oftentimes, Bonds will break out of these types of patterns in the direction of the previous trend, which was higher. The 10-year is in a similar position but reversed since we are looking at the yield.
Information (weekly review) was provided by Mark Hedman
Homebridge Financial Services - Sales Manager, Mortgage Loan Originator