Catalyst Strategic Solutions' website

Inflation Takes a Break

Learning Opportunities

Two key inflation reports were released this week, both showing a slowdown for the recent rise in inflation. First up was the Producer Price Index, PPI, which turned negative in August for the first time in 18 months. Most of the decline came from a drop in the cost of services, 80 percent of which was directly tied to lower margins for machinery and equipment wholesaling. While this measure in the index tends to be volatile, some economists believe it could reflect the beginning of a deceleration of inflationary pressures. Pricing pressures from tariffs levied on metals earlier in the year may have contributed to the prior year-over-year increases. The August year-over-year measure of core PPI fell 0.4 percent from a month ago to 2.30 percent.

It was a similar story with the index for consumer prices, CPI. The year-over-year CPI rate slipped 0.2 percent in August to 2.7 percent, its lowest rate since April. Monthly CPI rates increased 0.2 percent on headline and 0.1 percent at the core level, both less than expected. Apparel prices plummeted 1.6 percent, the largest drop in decades. Medical costs fell for the second month in a row. Together, the declines in several categories offset increases in gas prices and rents. The monthly declines could keep the year-over-year rates from rising this year.

Key Indicators this Week:

Retail Sales – It appears we wore out our shopping shoes in July. Retail sales increased a mere 0.1 percent in August after rising 0.7 percent in July, the second highest pace this year. Sales at apparel and department stores reversed course, falling more than one percent, compared to large increases in July. Auto sales were the other major category that posted a sharp monthly decline. Despite the weakness in August sales, consumer sentiment remains the highest in six months, which could mean the shopping shoes come out again for the holiday season.

Fed Beige Book – Concerns over the mounting trade tariff battles continue to worry businesses across the country. The most recent report from the Federal Reserve's 12 districts, commonly known as the Beige Book, described an economy growing moderately, but cautiously. Several businesses in the Richmond district reported postponing capital investments due to concerns that business conditions could weaken as a result of the tariffs. Other companies said they were unable to pass on price increases resulting from the tariffs, while also incurring higher input costs. Employment rose at a modest or moderate pace across most of the country. However, roughly half the districts mentioned cases where the inability to find workers hampered sales or delayed projects. On a more positive note, most districts reported consumer confidence remains high.

Strategically for Credit Unions:

Consumer credit increased 5.1 percent in July. The non-revolving debt portion increased $15.4 billion, the largest rise since November 2017. The increase reflects a demand for big-ticket items, namely automobiles. Revolving debt, mostly credit cards, rebounded $1.3 billion after falling $1.2 billion the prior month. The increase in consumer credit is consistent with recent reports of strong consumer spending and high confidence levels. It also supports the continued loan demand many credit unions are experiencing around the country. As interest rates continue to rise along with loan demand, credit unions need to be sure their loan rates are high enough to maintain adequate margins, while also attracting member business. Now is a good time to make adjustments as needed.

Sarina Freedland –Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.