Last Week’s Economic News in Review (August 18th, 2021)

August 18th, 2021

Consumer sentiment suffered an unexpectedly large drop, consumer prices grew, and layoffs declined.

Consumer Sentiment

Consumer outlook tumbled in August, with the Index of Consumer Sentiment dropping to a score of 70.2 for the month, which was down 13.5 percent from July’s score of 81.2, according to last week’s preliminary results from the University of Michigan Surveys of Consumers. Compared to the same period a year ago, this was 5.3 percent below August 2020’s score of 74.1.

The Index of Current Economic Conditions, which describes how consumers feel about the current state of the economy and their place in it, fell to 77.9 for August, which was 7.8 percent below July’s ranking of 84.5. When compared to the same period a year ago, August was 6 percent down from August 2020’s score of 82.9.

The Index of Consumer Expectations, which assesses how consumers feel about where the economy is headed, also dropped in August, falling to 65.2, which was 17.5 percent down from July’s score of 79. When compared to last year, August’s score was 4.8 percent below August 2020’s ranking of 68.5.

So what caused what the Surveys of Consumers’ Chief Economist Richard Curtin described as a “stunning loss” in confidence?

“There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion,” he said in comments accompanying the data release. “Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.

“In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism,” Curtin continued. “Consumers’ reaction to Delta’s modestly higher precautionary measures indicates the difficulty of producing optimal policy responses.”

Consumer Prices

Consumer prices rose in July, with the Consumer Price Index for All Urban Consumers growing 0.5 percent during the month, according to last week’s report from the Bureau of Labor Statistics. Compared to the same period a year ago, July’s index is up 5.4 percent from July 2020.

The index for all items except for the volatile food and energy categories – known as core inflation – rose 0.3 percent in July.

Key drivers for July’s price gains included prices for gasoline, which grew 2.4 percent, and gas utilities, which increased 2.2 percent. Another notable gain was in new vehicle prices, which rose 1.7 percent.

So, is it time to worry about ongoing price gains? Most economists agree that prices got hot with the reopening of the economy but will cool down. The questions are how quickly and will that be fast enough for the Federal Reserve?

“We’ve gotten through not all of, but a lot of, the reopening noise,” Evercore ISI economist Peter Williams told the New York Times.

Initial Jobless Claims

In employment news, first-time claims for unemployment benefits filed by recently unemployed Americans during the week ending Aug. 7 dropped to 375,000, a fall of 12,000 claims from the previous week’s total of 387,000, the Employment and Training Administration reported last week. This was right in line with economists’ expectations of initial jobless claims of 375,000.

The four-week moving average, which is considered a more stable measure of jobless claims, grew to 396,250, which was 1,750 claims up from the preceding week’s average of 394,500 claims.

This week, we can expect:

Tuesday – Business inventories for June and retail sales for July from the Census Bureau; industrial production and capacity utilization for July from the Federal Reserve.

Wednesday – Housing starts and building permits for July from the Census Bureau and the Department of Housing and Urban Development.

Thursday – Initial jobless claims for last week from Employment and Training Administration; leading economic indicators for July from The Conference Board.

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