Wall Street Wrap
Key inflation measures rise: This month’s CPI from the BLS showed prices rising 0.2 percent in July, compared to 0.3 percent in June. On a year-over-year basis, overall inflation held steady at 2.7 percent, thanks partly to lower fuel prices. Core inflation, which excludes volatile food and energy costs, showed more movement. This figure, which is the measure the Federal Reserve focuses on, rose 0.3 percent in July and 3.1 percent on a year-over-year basis, the fastest annual pace in four months.
Prices for services overall rose 0.36 percent after last month’s increase of 0.25 percent. So-called “super core” services inflation (excluding shelter) rose 0.48 percent in July and is up 3.2 percent year-over-year.
This month’s Producer Price Index (PPI), also from the BLS, shows that wholesale prices increased by 0.9 percent in July, the largest monthly rise in three years. This increase was driven by a 1.1 percent leap in services prices, which had been tracking relatively low of late. Meanwhile, wholesale goods prices rose 0.7 percent. Higher input costs for businesses point to likely increases in prices for consumers in the coming weeks and months.
Consumer sentiment dips: Consumer sentiment declined in August for the first time in four months. Preliminary results from the latest consumer sentiment survey released by the University of Michigan show that the index fell 3.1 points from July to 58.6. While expectations for the future remained largely unchanged at a historically depressed 57.2 versus July’s 57.7, consumers’ views of their current condition fell to 60.9 versus 68 in July.
The survey indicates growing concerns about inflation, with year-ahead inflation expectations jumping to 4.9 percent from 4.5 percent. Expectation for five- to 10-year inflation also rose, to 3.9 percent from 3.4 percent, highlighting the risk that consumers may expect inflation to become a persistent feature of the U.S. economy. Additionally, about 62 percent of consumers expect unemployment to worsen in the coming year, an increase from last month’s 57 percent. While this figure is below the peak of 66 percent in March 2025, it remains at levels that have historically been associated with economic contractions and declining labor markets. Consumers across the political spectrum expect to decrease spending on items that experience inflation, although Republicans are less likely to do so than independents or Democrats. That said, “consumers are no longer bracing for the worst-case scenario for the economy feared in April when reciprocal tariffs were announced and then paused,” Survey of Consumers Director Joanne Hsu said in comments released with the survey results.
Small business optimism improves among sales concerns: Optimism among small businesses improved in July according to the latest data from the National Federation of Independent Business, rising 1.7 points to 100.3, slightly above the 52-year average of 98. The percentage of business owners expecting better business conditions rose 14 points from June to 36 percent. During the same period, however, the Uncertainty Index increased by eight points to 97, higher than historical norms.
On-the-ground business conditions largely improved in July as well. When asked to rate the health of their businesses, 13 percent said excellent, and 52 percent said good, up five and three points, respectively, from June. Meanwhile, the portion of businesses that rated the health of their companies as fair or poor fell four points to 31 percent, and the percentage that rated it poor fell three points to 4 percent.
That said, sales remain a concern for many business owners. The percentage of small business owners reporting poor sales as their top business problem rose one point to 11 percent, the highest level since February 2021. Additionally, the portion of business owners reporting higher nominal sales in the past three months fell four percentage points to -9 percent, while 24 percent reported higher average prices in July. Looking ahead, 28 percent said they plan to increase prices, down four points from June but still above the historical average.
Retail sales grow: The latest retail sales numbers from the U.S. Census Bureau show that rose 0.5 percent in July, following a revised 0.9 percent rise in June.
Overall, nine of the 13 categories registered increased sales, led by a 1.6 percent rise in motor vehicles and parts sales. Furniture and home furnishing sales rose 1.4 percent, while sales from non-store retailers, which capture e-commerce spending, rose 0.8 percent. Overall retail sales are up 3.9 percent year over year on a seasonally adjusted basis. The latest reading builds on June’s rebound of increasing consumer spending after a two-month decline in April and May. The recovery in sales could be a sign that consumers who had stocked up ahead of levies are continuing to replenish depleted supplies. Overall, the Control Group (which is a proxy for the spending measure found in gross domestic product growth) rose 0.5 percent for the month, above Wall Street expectations of a 0.4 percent increase.
Jobless claims decrease but continuing claims remain high: The number of new fell to 224,000, a decrease of 3,000 from last week’s revised level, indicating that employers are not laying off workers on a broad scale.
—the number of people who received benefits after their initial week of aid—fell slightly to 1.953 million, down 15,000 from the previous week’s revised figure but well above the 1.863 million level in the same week last year. This trend continues to suggest that layoffs remain low, but weak hiring is keeping those who become unemployed out of work longer.
The Week Ahead
Monday: The Homebuilders Index from the National Association of Home Builders will be out in the morning. Homebuilder confidence sagged last month due to concerns about tariffs and interest rates. We’ll monitor the latest data to see if the outlook has shifted.
Tuesday: The U.S. Census Bureau will release data on new residential construction in July. This data, along with the Homebuilders Index released on Monday, will provide insight into the home construction market.
Wednesday: The Federal Reserve will release minutes from the July Federal Open Market Committee meeting. We’ll be looking for more insight into the committee’s thinking on inflation and the labor market—as well as the debate that led two committee members to vote in favor of a rate cut last month.
Thursday: We’ll get insights into the housing market when the National Association of Realtors releases existing home sales for June. Sales declined last month for the third time in four months. We’ll watch to see if this trend has continued due to elevated interest rates.
The Conference Board’s latest Leading Economic Index Survey for July will be out by midmorning. Last month’s reading showed modest weakening with an increased risk of a recession. We’ll look at the data to see if this weakening persists or if readings have stabilized.
We’ll get an update on the health of manufacturing and services in the U.S. when S&P Global releases its Flash Purchasing Manufacturers Index reports for August. U.S. business activity grew in July, as a rising demand for services counteracted a manufacturing dip. We’ll be watching to see how continued tariff uncertainty affects both sectors.
Initial and continuing jobless claims will be out before the market opens. We’ll be watching for more insight into the health of the labor market, particularly when it comes to continued claims.
Friday: Federal Reserve Chair Jerome Powell takes the stage at the Kansas City Federal Reserve’s annual Jackson Hole Economic Symposium. Historically, this meeting has served as a forum for potential shifts in monetary policy, with Chair Powell using his 2024 speech to “announce” a shift to a rate-cutting regime that began in September 2024 with three simple sentences: “We do not seek nor welcome further cooling in labor market conditions. The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” Given the current tension between potential inflationary pressures and slowing labor markets, investors will once again be listening for any indication of the path forward for monetary policy.