Returning with comments after 3 weeks, we have updates on inflation, jobs and economic activity. We also have meaningful 3rd quarter trend updates from 2 large Financial companies. Altogether I see an environment with still elevated inflation, weakening employment and ongoing manufacturing weakness. My net takeaway is an increasing portion of consumers are experiencing more severe financial stress while overall recession risks remain elevated.
Beginning with consumer inflation, the August Consumer Price Index (September 11) found headline prices increased 0.2% in August for a 2.5% 1-year increase. Core CPI increase 0.3% in August and 3.2% from the prior year. The 6-month annualized core CPI fell to 3.0% and should fall below 3% when the hot March roll month falls from the calculation next month.
The August Employment Situation report (September 6) found 142k net jobs created in the month. The August gains were offset by negative prior months revisions of -86k. Negative prior months revisions have become more common for the Establishment Survey. The average monthly revision in 2024 is -52k. The recent lack of correlation between the monthly Establishment and Household surveys also persists. The Household survey indicates -66k fewer total employed persons today compared with August 2023. The net difference in total jobs created since December 2020 as reported in the 2 BLS surveys remains wide with -4.8 million fewer new jobs in the Household survey.
Now turning to August PMI trends, the S&P Global PMI data reported August Manufacturing PMI (September 3) at 47.9. Disturbingly, lower Manufacturing demand is being accompanied by rising inflation pressure as noted in report comments that, “Although falling demand for raw materials has taken pressure off supply chains, rising wages and high shipping rates continue to be widely reported as factors pushing up input costs, which are now rising at the fastest pace since April of last year.â€
Despite the negative Manufacturing trends, August Services and Composite PMI (September 5) remain consistent with economic expansion. Even as these readings accelerated to their highest levels since 2022, the report cautiously noted, “However, perhaps more worryingly, the recent downturn in manufacturing activity is showing some signs of spilling over to the broader economy, notably via stalled orders for industrial services.â€
Finally, company specific commentary on 3rd quarter trends contributed to equity market selling pressure. While participating at an industry investor conference, ALLY CFO Russell Hutchinson commented that auto loan credit quality is deteriorating more rapidly than previously expected.
“On the retail auto side, our credit challenges have intensified over the course of the quarter. In July and August, we saw delinquencies up about 20 basis points versus our expectations. And we saw NCOs up about 10 basis points versus our expectations.