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Weekly Economic and Financial Commentary: Lackluster Growth in Some Foreign Economies in Q2

U.S. Review

Prices Continue to Advance

  • Consumer prices increased 0.2 percent in July, advancing to 2.9 percent on a year-to-year basis, the strongest pace in six years. The core CPI index also rose a strong 0.2 percent, bringing the year-to-year rate to 2.4 percent.
  • The Producer Price Index showed no change in July. However, underlying details showed prices trending higher. Excluding food, energy and trade services, prices rose 0.3 percent.
  • JOLTS data for June indicated that the number of open job positions remained near record highs at 6.7 million. The quits rate also remained elevated at 2.3 percent.

Prices Continue to Advance

This week offered few surprises in terms of economic data. Prices continue to gradually rise and evidence of a strong labor market continues to mount. We maintain our stance that the Fed should be on track for two more rate hikes this year in September and December, with two additional quarter-point hikes in 2019.

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Consumer prices matched expectations and edged up 0.2 percent in July. The monthly gain kept the headline index at a 2.9 percent increase on a year-to-year basis, the fastest pace in six years. Energy prices were a drag on the headline figure and dropped 0.5 percent for the month, mostly the result of lower gas prices. Excluding food and energy prices, the core index also rose 0.2 percent during the month. Before rounding however, core prices came in on the high side of expectations and grew 0.24 percent, pushing prices 2.4 percent higher compared with last year. Much of the monthly increase in core prices was owed to a 0.3 percent gain in services, notably in housing, which also rose 0.3 percent. Vehicle prices also advanced, with a 1.3 percent rise for used vehicles. While increases were generally broad-based, apparel and medical care prices saw modest declines.

Meanwhile, the overall Producer Price Index fell short of expectations and showed no change in July. However, the underlying details showed that prices continue to trend higher. June’s soft topline reading was the result of a drag from declines in several volatile sectors. The trade services price index, which is measured by changes to retail and wholesale margins, fell 0.8 percent, while food decreased 0.1 percent and energy declined 0.5 percent. The “core-core” measure, which excludes food, energy and trade services, rose slightly more than expected and increased 0.3 percent during the month. Over the past 12 months, “corecore” prices for U.S. producers have now risen 2.8 percent. However, intermediate prices for processed goods were flat in July and input costs for services have slowed in comparison to earlier this year, an indication that price growth should be contained and continue to advance at a gradual pace.

We also received new data that reflect the underlying strength of the labor market. JOLTS data for June revealed that the number of job openings was essentially unchanged at 6.7 million during the month. However, job openings are near a record high and remain well ahead of the 6.1 million open positions posted a year ago. The number of job openings has also now exceeded the number of unemployed for the fourth consecutive month. Most industries saw the number of job openings increase in June, notably in financial activities and wholesale trade. The construction and manufacturing industries also saw the number of open positions increase duri