Week of September 9 - 13, 2019

Maureen Kelliher, CFA

Maureen Kelliher, CFA

September 17, 2019

Weekly Economic Review

Weekly Macro Updates

Initial Jobless Claims (Sep 7) 215k est., 204k actual, 219k prior
Continuing Claims (Aug 31) 1675k est., 1670k actual, 1674k prior
PPI Final Demand YoY (Aug) 1.7% est., 1.8% actual, 1.7% prior
PPI Ex Food & Energy YoY (Aug) 2.2% est., 2.3% actual, 2.1% prior
CPI YoY (Aug) 1.8% est., 1.7% actual, 1.8% prior: R-
CPI Ex Food & Energy YoY (Aug) 2.3% est., 2.4% actual, 2.2% prior
Real Average Weekly Earnings YoY (Aug) 1.2% actual, 0.9% prior: R +
Empire Manufacturing (Sep) 4.0 est., 2.0 actual, -1.9% prior: R+
Industrial Production MoM (Aug) 0.2% est., 0.6% actual, -0.1% prior: R+
NAHB Housing Market Index (Sep) 66 est., 68 actual, 66 prior
Retail Sales Advance MoM (Aug) 0.2% est., 0.4% actual, 0.8% prior: R+
Retail Sales Ex Auto & Gas (Aug) 0.2% est., 0.1% actual, 0.9% prior
Retail Sales Control Group (Aug) 0.3% est., 0.3% actual, 0.9% prior: R-
University of Michigan Sentiment Index (Sep P) 90.8 est., 92.0 actual, 89.8 prior

 Strong or Improving
 Inconclusive or lacking trend
 Weak or declining
R+ Revised up
R- Revised down

Directional change based on general
long-term tends.

Capital Market Implications

Surprisingly, due to a 0.9% jump in medical insurance costs, consumer prices firmed more than expected in July. Both hospital care and medical insurance costs contributed to the month-over-month increase. Which in turn, pushed the year-over-year core CPI up to 2.4%, its highest level since July 2008. Core producer prices were also higher, having increased 2.3% for the year. Although these inflation levels are not alarming, it is clear consumer prices have bottomed and now are firming. On a positive note, industrial production and capacity utilization in August were healthy and above estimates, while the remainder of the week’s economic releases were in line with recent trends: July retails sales were solid and the University of Michigan Consumer Sentiment Index rebounded in September.

Last week, the S&P 500 Index rose 1.0% while the Dow Jones Industrial Average increased 1.6%. Value plays led the way, as financial, energy and material stocks all gained more than 3.0%. Although the overall market was positive, the rotation away from high valuation and momentum stocks continued apace. As such, technology stocks lost ground along with consumer staples. Again, last week, international markets demonstrated strength, with both developed foreign markets and emerging markets increasing nearly 2.0%. On the other hand, higher than expected inflation numbers and strong retail sales sent the yield on the ten-year Treasury note skyrocketing, up 34 basis points to 1.9%, a level last seen in July. The sudden and dramatic back up in yields pummeled bond prices. Although high-yield bonds were spared, all other sectors of the bond market suffered (off more than -1.0%) with US corporate bonds getting hit the hardest, down -2.2%.