This Week’s Economic Update, September 18, 2023

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Testing out the waters of the SEC, Texas came to play last week.  Alabama took a beating.  With their past success, the Crimson Tide just did not seem hungry or focused.  The outcome pushed Texas to #4 and put in question Alabama’s playoff hopes way too early this year.  This weekend Alabama dropped out of the top 10 for the first time in almost 10 years.  Their next real test will come on September 23 against Mississippi.  We will see if they get the fire back by then.

Back in 1977 the sequel to Jaws came out.  The tag line for the movie promotion was “Just when you thought it was safe to go back in the water, Jaws II”.  Last week’s inflation numbers may be the start of Inflation II.  The all inclusive inflation number in August was .6%.  In July it was only .2%. The August number included the very early bumps in gas and other energy prices that were prompted by the decrease in crude oil supplies that started in July.  Energy inflation accounted for half of the August increase. The September number is going to reflect a much higher inflation rate in energy as prices this month continue to rise.  The food increase was .2% which has been static for most of 2023. Energy prices are one of those pain points with consumers that carry a high psychological impact.  The movements in energy take precedent over other sector prices that may be declining.

The core inflation level for August bumped up from .2% in July to .3%.  The core level removes food and energy impacts.  The jump here came from two areas, both in the same realm of impact as energy.  First was insurance costs.  Whether it is property or auto insurance, renewal rates are skyrocketing and are not expected to abate during the rest of the year.  As renewals arrive in the mail, owners are getting a level of sticker shock that was unexpected.  Higher mortgage rates and rents pushed housing expenses up by .3%.  This was lower than prior increases which have been averaging .5% this year.  The lower level of increase is good news, but again, is one of those pain points that leaves a mark on the family’s budget.

The type of inflation that was exhibited in the August numbers is not something that movements by the Federal Reserve will have much, if any impact on.  Insurance, food, other services and energy are dependent upon other factors than the money supply or the interest rates.  These areas are capable of igniting a brush fire of inflation in other areas as businesses pass on the higher costs in pricing.  Real wages for workers have been rising since December.  This has the potential to start a wage/price increase spiral.  Depending on the UAW and other strikes, we could see an added push on price rises. 

Overall retail sales in August rose .6%.  That was higher than the July number which came in at .5%.  However, behind the numbers the news is not good at all.  When you pulled out retail gas sales, the actual core number was up only .2%.  In July that number was .7%.  The pull back on retail sales could be the early sign of trouble.  Personal savings and liquidity levels continue to decline.  As price for fuel impact personal budgets, spending is bound to fall on consumer goods.

The headwinds for the fourth quarter are picking up speed.  The UAW strike is likely to extend deep into October.  If it does so, the ripple effect in the supply chain will negatively impact manufacturing, driving down GDP.  Banks nationwide are experiencing a decline in their loan pipelines that has not been seen since 2007/8.  Layoffs are expected in the finance industry at virtually all levels in the near future. Add the restart of student loan payments along with rising credit card delinquencies and you can see why there are concerns.

Have a great week.



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