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Federal National Mortgage Association: Retail Sales and Industrial Production Slow as Core Inflation Intensifies More Than Expected

By on September 16, 2022 0

Key points to remember:

  • The consumer price index (CPI) rose 0.1% in August after a flat month in July, according to the Bureau of Labor Statistics (BLS). On a yearly basis, prices rose 8.3%, the slowest rate of increase since April. The overall gain was dampened by a 10.6% decline in gasoline prices. By contrast, while moderating slightly at the slowest pace since last December, food prices rose 0.8% in the month. Excluding food and energy, core CPI rose 0.6 percent in August and 6.3 percent year on year, accelerations of three ticks and four ticks from July, respectively. Housing costs, which rose 0.7%, a cycle high, medical care services, which rose 0.8%, and new vehicle prices, which also rose 0.8% , were behind the rise in core inflation.
  • The Producer Price Index (PPI) fell 0.1% in August after falling 0.4% in July, according to the BLS. Annually, the PPI rose 8.7%, the lowest annual rate in a year. Final energy demand fell by 6.0%, while food prices remained stable. Final demand for services rose 0.4%, the biggest increase since May. The core PPI (less food, energy and commercial services) rose 0.2% in the month and 5.6% on an annual basis, the slowest rate since June 2021.
  • Retail and catering rose 0.3% in August, according to the Census Bureau. Additionally, June spending data was revised upwards, but was more than offset by a downward revision to July data. The small overall gain was mainly due to a 2.8% jump in sales of motor vehicles and parts; excluding these sales, retail spending fell 0.3%. Gas station sales fell 4.2% as gasoline prices fell further, while restaurant and bar sales rose 1.1%, rebounding from a 0.8% decline in July. Core retail sales, which exclude food services, automobiles, building materials and gas stations, were flat.
  • Industrial production, an indicator of output in the manufacturing, utilities and mining sectors, fell 0.2% in August, according to the Federal Reserve Board. Manufacturing output rose by a tick to 102.2, while utilities output fell 2.3% due to cooler than usual weather. Mining production remained stable.
  • National Federation of Independent Business (NFIB) Optimism Index rose 1.9 points to 91.8 in August, its second consecutive monthly gain. A net negative of 42% for businesses expects the economy to improve, a 10 point improvement from July. Although still at a low level, this is the best reading since February. A net negative figure of 19% of companies expects real sales to rise, also a gain of 10 points from last month. Twenty-five percent of businesses plan to make capital expenditures in the next 3 to 6 months and 4 percent plan to increase inventory, an increase of 3 points for both measures. Fifty-three percent of businesses are raising average selling prices, a drop of 3 percentage points and the lowest level since October 2021, while even fewer 32 percent of businesses plan to raise prices at the future, a decline of 5 percentage points and the lowest level since January 2021. The share of companies stating that the quality of the workforce is the “most important problem” jumped by 5 percentage points for reach 26%, the highest level since November 2021.

Expected impact:

Headline CPI was in line with our expectations, but core inflation came out much higher than expected. Despite signs that some supply chain issues are easing and reports that retailers have excess inventory, commodities less food and energy still rose at a healthy 0.5 %. Additionally, housing costs have risen at their fastest monthly rate this cycle and, given the lagged nature of the method of housing data collection, will likely continue to contribute significantly to underlying inflationary pressures. through 2023. Additionally, services minus housing rose 0.6%, suggesting that wage pressures remain strong in a tight labor market. We are likely to revise our short-term forecast for underlying inflation upwards based on this report.

Still, the PPI, which fell for a second straight month, and the NFIB survey, which showed far fewer companies are planning to raise prices, suggest that some easing of inflationary pressures from the offer could trickle down to consumers in the months to come. These reports are generally more in line with our current view that inflation is gradually slowing and will likely slow further as economic growth continues to weaken and commodity price inflation, in particular, begins to slow.

Retail sales revisions suggest that personal consumption in the second quarter was probably a little stronger than we previously thought, but also that growth in the third quarter is probably weaker. Weak core retail sales suggest consumers are not yet using their extra disposable income from lower gas prices to fund purchases elsewhere, although restaurant sales have resumed their trend of outperforming the higher retail sales growth. Industrial production, an important indicator of recession, was also weak in August and suggests the COVID shutdowns in China and the energy crisis in Europe are likely starting to weigh on U.S. manufacturing. Overall, we think these reports are consistent with our view that the economy is largely stagnant and will tip into a recession early next year.

Nathanael Drake
Economic and Strategic Research Group
September 16, 2022

The opinions, analyses, estimates, forecasts and other views of Fannie Mae’s Economic and Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions and are subject to change without notice. How this information will affect Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other points of view on information which it considers reliable, it does not guarantee that the information provided in these documents is accurate, up-to-date or suitable for a particular purpose. . Changes in the assumptions or information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.


Fannie Mae – National Federal Mortgage Association published this content on September 16, 2022 and is solely responsible for the information contained therein. Distributed by Audienceunedited and unmodified, on September 16, 2022 5:19:06 PM UTC.

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