Summary
United States: Inflation Continues to Ease
- Price pressures in the U.S. economy continue to subside. During July, both the headline and core Consumer Price Index (CPI) rose 0.2%. On a year-over-year basis, the core CPI was up 4.7% in July. Recent signs have been more encouraging, with core CPI running at a 3.1% three-month annualized pace. Furthermore, July’s Producer Price Index (PPI) and NFIB Small Business Optimism Index also suggest that underlying inflation is dissipating.
- Next week: Retail Sales (Tue.), Housing Starts (Wed.), Industrial Production (Wed.)
International: U.K. Economy Shows Surprising Resilience
- The U.K. economy showed some surprising resilience in Q2, as Q2 GDP rose 0.2% quarter-over-quarter. The details showed relatively solid domestic demand, as consumer spending rose 0.7% and business investment rose 3.4%. That said, given the prior increase in inflation and interest rates over the past several quarters, we still anticipate the U.K. falling into a mild recession later this year.
- Next week: Japan GDP (Tue.), China Retail Sales & Industrial Output (Tue.), Canada CPI (Tue.)
Interest Rate Watch: Quantitative Tightening Keeps Rolling Along
- In May 2022, the FOMC announced plans to begin reducing the size of its balance sheet. At the time, the Fed’s balance sheet had ballooned from roughly $4.2 trillion before the pandemic to nearly $9 trillion. Since then, the Fed’s total security holdings have fallen by $900 billion amid quantitative tightening (QT), the phrase often used to describe the Fed’s security runoff program.
Credit Market Insights: Household Debt Hits an All-Time High
- The Federal Reserve Bank of New York released its second quarter Household Debt and Credit Report this week, which indicated total debt balances increased by $16 billion in Q2. The uptick led household debt to notch an all-time high of just over $17 trillion.
Topic of the Week: Workforce Evolution in the World’s Factory
- Known as the “world’s factory,” China has been a manufacturing powerhouse since the late 1990s. However, the ultra-cheap labor costs that facilitated China’s role as a manufacturing hub are fading as rising labor costs and demographic challenges are putting pressure on China’s manufacturers.
