Positives
1)Headline CPI was flat m/o/m in July and up by .3% m/o/m at the core level, both 2 tenths below expectations. For perspective, the comparisons were 1.3% and .7% in June. Versus last year, the headline gain was up 8.5% vs 9.1% in June and by 5.9% at the core, unchanged with June. Driven by a 7.7% drop in gasoline prices, energy fell by 4.6% m/o/m, though still up 33% y/o/y while food was up another 1.1% m/o/m and 10.9% y/o/y. Services inflation ex energy was higher by .4% m/o/m after a .7% gain in June. It’s up 5.5% y/o/y. On the goods side, core prices were up .2% m/o/m and 7% y/o/y. That y/o/y gain is a slowing rate of change for the 5th straight month.
2)Up against a tough comparison in June of up 1.1%, July headline PPI fell by .5% instead of rising by .2% as expected. The core rate was higher by .2%, half the estimate. The y/o/y gains are still very robust but less so. The headline increase was 9.8% vs 11.3% last month. The core rate was up by 7.6% vs 8.2% in June.80% of the headline drop was attributable to the fall in gasoline prices which fell by almost 17%.
3)Thanks to a sharp drop in gasoline prices, a fall in food prices, price cuts on a variety of goods like apparel, and the implicit belief that aggressive rate hikes are going to further hurt demand and thus prices, the NY Fed said one yr inflation expectations fell to 6.2% from 6.8%. The 3 yr outlook fell to 3.2% from 3.6%. They said “Both decreases were broad based across income groups, but largest among respondents with annual household incomes under $50k and respondents with no more than a high school education.”
4)Initial claims totaled 262k, 3k less than expected and last week had a rather large downward revision of 12k to 248k. Smoothing this out puts the 4 week average at 252k vs 248k last week and vs 245k in the week prior.
5)For the week ended July 29th, the average 30 yr mortgage rate fell by a sharp 31 bps to 5.43% and for the week ended August 5th ticked up to 5.47%. In response, purchases gave back last week’s rise as it fell by 1.4% and is down 19% y/o/y. Refi’s were up for a 2nd week by 3.5% but still is down by 82% y/o/y.
6)The July NFIB small optimism index was 89.9, up a touch from the 89.5 print seen in June which was the lowest since January 2013. After dropping another 7 pts in June to a survey record high dating back to the 1970’s, those that Expect a Better Economy bounced by 9 pts to a still deeply negative -52%.The NFIB said, “The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions. As we move into the 2nd half of 2022, owners will continue to manage their businesses into a very uncertain future.”
7)China said its July exports grew by 18% y/o/y which is above the estimate of up 14.1% as things further reopened and backlogs that grew were finally satisfied likely explains this. Reflecting though the broader slowdown, imports (both for domestic consumption and inputs that eventually make its way into exports) rose by 2.3% y/o/y, modestly less than the forecast of up 4%.
8)Taiwan also reported its July trade data and exports jumped by 14.2% y/o/y, above the estimate of up 11.1% and tech products, mostly semi’s, drove the gain. Exports to the US spiked by 25%. Imports were up by 19.4%, just under the forecast of up 20.1%.
9)In Europe, the Sentix Investor Confidence index rose to -25.2 from -26.4 which was the lowest since May 2020. Sentix said “The economic situation in the Eurozone remains difficult.” And while there was a m/o/m slight gain, “this does not mean the all-clear has been given. A recession in the Eurozone is still very likely.”
10)Industrial production in June in the EU beat expectations with a .7% m/o/m gain vs the estimate of up .2% and May was revised up.
Negatives
1)The Cleveland Fed’s July trimmed mean CPI rose .4% m/o/m and 7% y/o/y, a fresh new high in this cycle dating back to the early 1980’s.
2)While old news but with Q3 shaping up to be no better, productivity in Q2 fell 4.6% q/o/q annualized after a 7.4% drop in Q1. As I like to look at this figure y/o/y, it was down 2.5% after a .6% drop in Q1 and that is the worst quarterly y/o/y figure since I have data going back to 1948. Coincident with this was the 9.5% y/o/y rise in unit labor costs after an 8.2% rise in Q1 and that is the highest since 1982.
3)Fannie Mae’s Home Purchase Sentiment index for July fell 2 pts to 62.8 and that is the lowest since 2011. Only 17% said it’s a good time to buy and with prices trends softening, 67% said it’s a good time to sell, down from 76% in May.
4)Delayed by a week in reporting, continuing claims rose by 8k to 1.428mm, the highest since early April.
5)Credit growth in China slowed sharply in July as aggregate financing was just 756b yuan, almost half the estimate. With the housing market under major pressure, mortgage lending saw only a modest increase.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.