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Econ Mornings (9/13/2022)

MTS Insights
MTS Insights
Economic news and commentary for September 13, 2022

US CPI & NFIB Small Business Optimism
The NFIB Small Business Optimism Index grew 1.9 pts to 91.8 in August. This is the eighth consecutive month below the 48-year average of 98 but a positive month nonetheless. Both the indexes for expectations for the economy and sales saw the strongest bounces, up 10 pts to -42% and -19% respectively. The improvement in expectations could be a result of a further decline in inflationary pressures. The net percent of owners raising average selling prices decreased -3 pts to 53%, and the net percent of owners planning on increasing prices fell -5 pts to 32% (the lowest reading since January 2021). The small business labor market remains tight. 49% of all owners reported they had job openings they could not fill in August which is unchanged from July. While inflation may be easing and hiring is still strong, small businesses remain pessimistic about growth in sales and profitability given the economic outlook.
US CPI edged up 0.1% MoM to 8.3% YoY in August, down from 8.5% YoY in July. The 0.8% MoM increase in food prices is the smallest monthly increase since December 2021 but still has the index up 10.9% YoY. The food at home index grew 0.7% MoM, and the food away from home index grew 0.9% MoM. The food at home index rose 13.5% YoY, the fastest since 1979. Energy prices fell -5.0% MoM in August to add to a -4.6% MoM decline in July. The gasoline index fell -10.6% MoM and was the main driver of the decline, but it was offset by electricity prices up 1.5% MoM, and natural gas prices up 3.5% MoM. Energy inflation remains elevated at 32.9% YoY with upward pressure likely to come as winter begins.
The troubling print in the August inflation report is the 0.6% MoM increase in core CPI which has the index up 6.3% YoY (above July’s 5.9% YoY). Within core CPI, the index for household furnishings and operations continued to rise, increasing 1.0% in August after rising 0.6% in Jul. While used vehicle prices fell -0.1% MoM, new vehicle prices were up 0.8% MoM to 10.1% YoY. Some other categories with robust monthly growth were personal care (+0.6% MoM) and education (+0.5% MoM). Despite increases in these categories, home and rent increases remain the main force behind higher core inflation. The shelter index rose 6.2% YoY, accounting for about 40% of the total increase in all items less food and energy. The Fed will undoubtedly see this as a hotter-than-expected inflation report and will look to be hawkish in its September meeting.
Japan PPI
Japan’s PPI edged up 0.2% MoM to 9.0% YoY in July, unchanged from 9.0% YoY in June. The Export Price Index fell -2.3% MoM to 17.0% YoY, and the Import Price Index fell -2.3% MoM to 42.5% YoY. Japanese producer price inflation has been above 8% YoY since October 2021 and above 9% YoY since January 2022. Electric & power prices continued their upward climb and were the main drivers of the increase in August (up 3.3% MoM to 33.4% YoY). The longer that costs are elevated for firms, the more those costs will have to be passed on to the consumer. The Bank of Japan’s accommodative monetary policy is doing nothing to mitigate this.
Australia Consumer Sentiment & NAB Business Survey
The Australian Westpac Melbourne Institute Index of Consumer Sentiment rose by 3.9% MoM from 81.2 in August to 84.4 in September. Despite the slight increase, the index remains at historically low levels reflective of the recessions in the 1980s and 1990s. The main source of optimism is in labor market confidence. The Unemployment Expectations index fell below 100 in September which indicates that a majority of consumers expect unemployment to fall rather than rise in the next year. Regardless, rising interest rates continue to be on the minds of consumers. Around 57% of consumers still expect rates to rise by 1% or more. As a result, the ‘Time to buy a dwelling’ index is still very weak despite a 2.9% MoM increase this month.
Australian business confidence also saw a slight increase in September. The NAB Business Survey Business Confidence index grew 2 pts to 10 in August, and the Business Conditions index grew 1 pts to 20. In general, trading improved slightly (up 4 pts to 30) while profitability and employment both declined (both down -2 pts to 16). Capacity utilization was still very high at 86.3% as a result of a positive near-term outlook which is likely a result of some key cost measures easing. In particular, labor costs in the quarter to August were up 3.5% QoQ, down from 4.5% QoQ in July. Declines can also be tracked in purchasing costs (up 4.4% QoQ, down from 5.3% QoQ) and final product prices (up 2.4% QoQ, down from 2.6% QoQ). It seems that despite low consumer sentiment, spending is not declining to the level that Australian businesses are pessimistic despite rate hikes tightening financial conditions.
Germany CPI & ZEW Survey
Germany’s CPI edged up 0.3% MoM to 7.9% YoY in August, up from 7.5% YoY in July. Energy inflation remains elevated at 35.6% YoY; though, it is slightly down from the 35.7% YoY growth in July. The relief measures introduced by the German government have done little to ease energy product price increases. Heating oil prices more than doubled YoY (+111.5%), the increase in natural gas prices was 83.8% YoY. These are troubling considering colder weather is on the horizon. Food prices also continued their upward climb growing 1.5% MoM and 16.6% YoY in August. Food price increases were seen in all food categories. Core inflation is at 3.5% YoY with just service inflation at just 2.2% YoY. However, the downward effect of the 9-euro ticket program could disappear as the measure has expired. Nothing points to cooler inflation on the horizon, and natural gas supply issues are getting worse as we go into winter.
All the inflation has caused sentiment to crash further. The ZEW Indicator of Economic Sentiment for Germany fell by -6.6 pts to -61.9 in September, and the assessment of the economic situation in Germany fell -12.9 pts to -60.5. The prospect of energy shortages in winter has made expectations even more negative for large parts of the German industry. The financial market experts’ sentiment concerning the economic development of the eurozone fell by -5.8 pts in Sep and currently stands at -60.7. To many in Germany, it seems that the worst has yet to come.
UK Employment
The UK unemployment rate fell -0.2 ppts to 3.6% in the quarter to July which is the lowest rate since 1974. The employment rate fell as well, down -0.2 ppts to 75.4%. Declines in both the unemployment and employment rate were a result of a rise in worker inactivity. Indeed, The inactivity rate grew 0.4 ppts to 21.7% as a result of a rise in students and long-term sick leaving the labor force. Alongside the decline in labor supply, labor demand edged down. Job vacancies fell -34,000 to 1.23 million which is the largest quarterly fall since August 2020. The decline in the labor supply will be troubling for the Bank of England will have to deal with upward pressure on wages if further declines occur.
Italy Employment
Italy’s unemployment rate fell -0.4 ppts to 8.1% in Q2 2022 with a robust 800,000 jobs added in the quarter. The employment rate increased 0.5 ppts to 60.2%. Demand for labor continued to increase with the job vacancy rate moving up 0.2 ppts to 2.2%. There was also a notable increase in the labor supply with the inactivity rate down -0.3 ppts to 34.4, a decline in the inactive population by -900,000.
Still to come...
7:50 pm (EST) - Japan Machinery Orders
Morning Reading List
The Impact of Getting the Jobs Market Back into Balance (LPL Financial)
US Economy Shakes Off Summertime Blues (BMO)
US food supply chains struggle to get back into shape (ING)
Energy shock spurs Europe’s recession (BlackRock)
UK worker shortages persist as sickness weighs on the jobs market (ING)
Household Debt Keeps Mounting (BMO)
How Food and Energy are Driving the Global Inflation Surge (IMF)
Mexico: Peso Perky but Policies Polarizing (BMO)
How do rising incomes impact CO2 emissions? (World Bank)
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