8/11 - Weekly Economic Highlights

This week's inflation data provided encouraging indications of moderating inflation trends. The Consumer Price Index (CPI) witnessed a monthly increase of 0.2% in July, while the annual CPI experienced a slight rise to 3.2% due to an unfavorable year-over-year comparison. The core consumer price index, excluding volatile food and energy costs, showed a modest 0.2% rise for the second consecutive month, marking the smallest back-to-back increase in nearly two years and reaching a year-over-year total of 4.7%, down from 4.8% in June. The primary factor driving the CPI increase was housing costs, while used-car prices and airfares declined. Producer-price inflation rose by 0.3% in July, largely influenced by specific service categories, with a 0.8% increase from the previous year. Slight increases in goods prices were noted, particularly in food costs, while core goods prices, excluding food and energy, remained steady following a decline in June. These trends are likely to influence the Federal Reserve's stance on the future direction of monetary policy at the September meeting.

As for other economic data, this week saw an unexpected surge in US consumer borrowing in June, with total credit increasing by $17.8 billion. This growth was largely attributed to increases in non-revolving credit, including school tuition and vehicle loans. In contrast, revolving credit, which includes credit cards, home equity lines of credit, and personal lines of credit, among others, decreased by $604.5 million, indicating potential shifts in consumer spending behavior. Despite concerns about high prices and financial constraints, robust consumer spending persisted due to steady wage growth and low unemployment rates. US small-business sentiment reached an eight-month peak in July, as the National Federation of Independent Business index rose by 0.9 to 91.9, signaling a more optimistic economic outlook. More respondents expressed intentions to expand employment, invest in capital, and increase inventories in July. This sentiment aligns with improvements in consumer sentiment measures, suggesting the possibility of improved small business activity despite tight credit conditions and inflation concerns.

Treasury yields rose this week following the US Treasury's $103 billion quarterly refunding, which included auctions for $42 billion in 3-year notes, $38 billion in 10-year notes, and $23 billion in 30-year bonds. The 2-year Treasury note yield reached 4.89%, marking a 0.13% weekly gain, while the 10-year Treasury yield climbed to 4.14%, increasing by 0.09% for the week. Notably, the yield curve inversion between the 2-year and 10-year Treasury notes expanded to 75 basis points, an increase of 2 basis points. Looking ahead, the focus shifts to housing data and the impact of higher interest rates and affordability challenges. Investors will also receive additional insights on the direction of future monetary policy from the Federal Reserve's Federal Open Market Committee (FOMC) minutes from their July 26 meeting. The Chandler team maintains concerns about economic growth in the latter part of the year due to the ongoing tightening of financial conditions, despite moderating inflation. The Federal Reserve's federal funds rate remains in restrictive territory, and any further tightening could potentially disrupt the current outlook of gradual, albeit below-trend, economic growth.

Retail Sales, Empire Manufacturing, National Association of Home Builders (NAHB) Housing Market Index, Housing Starts, Building Permits, Industrial Production, Capacity Utilization, Federal Open Market Committee (FOMC) Meeting Minutes, Jobless Claims, Conference Board Leading Index, Philadelphia Fed Business Outlook

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.