Monday Economic Report: Core Consumer Inflation Strengthened in August, Pressuring Federal Reserve

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE –September 19, 2022

NAM Weekly Economic Toplines:

Consumer prices edged up 0.1% in August after being flat in July. Excluding food and energy, core consumer prices rose 0.6% in August, up from 0.3% in July. The Consumer Price Index has risen 8.3% over the past 12 months, decelerating for the second straight month from June’s pace (9.1%), which was the fastest since November 1981. Core inflation increased 6.3% year-over-year in August, strengthening from the 5.9% growth rate in July and not far from the rate in March (6.5%), which was the highest since August 1982. Overall, pricing pressures for consumers remain very elevated, and perhaps more worrisome, core inflation strengthened in August instead of moderating as expected. The current forecast is for year-over-year growth in the CPI to be 7.0% at year’s end, with core inflation at 5.5%. These data will continue to put pressure on the Federal Reserve to act aggressively and decisively on inflation. Indeed, the Federal Open Market Committee is widely expected to increase the federal funds rate by 75 basis points at its Sept. 20–21 meeting, with additional hikes predicted for the Nov. 1–2 and Dec. 13–14 meetings.  Producer prices for final demand goods and services edged down 0.1% in August, declining for the second straight month. Over the past 12 months, producer prices for final demand goods and services have risen 8.7%, down from 9.8% in July and the lowest year-over-year rate since August 2021. Core producer prices increased 5.6% year-over-year, continuing to decelerate since hitting a record 7.1% in March but remaining highly elevated. Meanwhile, manufacturing production and retail sales data for August provided mixed comfort, with positive but tepid growth for the month amid strong gains over the past year. Manufacturing production inched up 0.1% in August, expanding for the second straight month. Output in the sector has been essentially unchanged (up 0.2%) since the first quarter, or over the past five months. The sector has continued to grapple with soaring costs, supply chain bottlenecks, workforce shortages and geopolitical and economic uncertainties. Manufacturing production has risen a modest 3.3% year-over-year and 1.9% year-to-date. In addition, manufacturing capacity utilization was unchanged at 79.6% in August. That remains not far from April’s reading (80.0%), which was the highest since July 2000. Retail sales rose 0.3% in August, rebounding somewhat after falling 0.4% in July. These data are consistent with a consumer that is more selective and anxious, with Americans slowing or reducing their spending in some areas on concerns about inflation and the economic outlook. At the same time, it is important to note that Americans are still spending, with solid consumer sales growth over the past year. Retail sales have been strong over the past 12 months, rising 9.1% since August 2021, or 7.6% with motor vehicles and gasoline excluded. After dropping to a record low in June (50.0), the Index of Consumer Sentiment has risen for three straight months, increasing to 59.5 in September. Still, consumer confidence remains very low, with continued worries about inflation and uncertainties in the economic outlook. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks reflected weaknesses in the sector in September, with varied assessments of growth over the next six months. With that said, both reports noted raw material cost growth at the slowest pace since December 2020. Kentucky created the most net new manufacturing jobs in August, adding 7,600 workers, and Texas had the most manufacturing employment growth over the past 12 months, adding 51,000 since August 2021. Minnesota had the lowest unemployment rate in the country at 1.9%. Read Full Report