The total Consumer Price Index rose by 0.4% in August (I had forecast 0.3%) with the core rate exactly matching my forecast for an increase of 0.2%.
On a year-over-year basis, the all items index increased 1.9%, versus 1.7% for the 12 months ending July, while core CPI remained at 1.7% for the fourth month in a row.
The key takeaway from the report is that the year-over-year bump in headline inflation toward the Fed’s 2.0% target will prompt the market to consider more carefully the prospect of another rate hike before the end of the year.
U.S. Retail Sales declined 0.2% (I had forecast +0.2%) on the heels of a downwardly revised 0.3% increase (from 0.6%) for July. Core sales (ex-auto) rose by 0.2% (I had forecast 0.5%) following a downwardly revised 0.4% increase (from 0.5%) for July.
The weakness in August was paced by a 1.6% decline in auto sales, which were impacted partly by Hurricane Harvey, as well as a 1.1% decline in non-store retailers, which was an expected letdown after Amazon’s Prime Day boosted July sales.
The takeaway from the report is that it will temper forecasts for Q3 consumer spending as core retail sales, which exclude auto, gasoline station, building equipment and materials, and food services and drinking places sales, declined 0.2%.
The preliminary University of Michigan Consumer Sentiment Index for September checked in at 95.3 (I had forecast 95.5) versus the final reading of 96.8 for August.
The slight dip in the sentiment reading for September was spurred by concerns related to the economic impact Hurricanes Harvey and Irma might have. Those views were reflected in the Index of Consumer Expectations, which dropped from 87.7 to 83.4.
The Index of Current Economic Conditions jumped from 110.9 to 113.9, which is the highest level since November 2000.
The takeaway from the report is that consumers’ assessment of their financial situation is the best it has been in more than a decade.
What to Watch for This Week
The NAHB Housing Market Index Was measured at 67 in August and the September number is likely to disappoint. My call is for a drop to 64 as builders still struggle with costs.
U.S. Housing Starts and Building Permits, although generally trending higher, are still not coming in at the levels sufficient to meet demand. Look for the August figures to be a mixed bag with starts up to an annual rate of 1.170M units (from 1.155M) and permits pulling back from an annual rate of 1.223M to 1.212M.
U.S. Existing Home Sales slipped 1.3% in July to an annual rate of 5.44M units. My call is for the August number to come in at 5.42M.
The Federal Reserve meet this week and, given the lack of wage growth and inflation, will decide not to raise the key federal funds rate.