A series of inflation reports due out this week could propel or break the market’s summer momentum.
Investors will get the latest gauge of how quickly prices are rising across the U.S. economy from three releases on tap in the coming days: PPI, CPI, and unit labor costs.
The readings are expected to influence how Federal Reserve officials proceed with the rate hiking cycle and will be closely monitored after Friday’s monster employment report suggested more aggressive increases may be warranted to slow the economy.
The U.S. economy added 528,000 jobs in July, according to the Labor Department — a figure over twice as high as economists anticipated amid expectations job growth would recede as tighter monetary conditions and company layoffs stoked fears of a recession.
Moreover, the figure marked the labor market’s full recovery to its pre-pandemic level.
Stocks finished mixed on Friday as investors mulled the report. The tech-heavy Nasdaq fell 0.5% and the S&P 500 ticked down 0.2% while the Dow rose by 0.2%.
Economists at Bank of America called the report “a double-edged sword,” implying lower recession risk but an increased risk of a hard landing later.
"The July employment report was an absolute knock-out, a major upside surprise relative to my expectations and indeed much of the labor market data released up to this point,” Renaissance Macro Research Head of U.S. Economics Neil Dutta wrote in a note. “Talk of recession and a monetary policy pivot is premature.”
He added that "this jobs report is consistent with an inflationary boom. The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely."
The labor market’s unusual tightness has been a focal point of Fed officials, with the imbalance between job openings and available workers placing upward pressure on wages and exacerbating inflationary pressures.
The labor force participation edged marginally lower last month, falling to 62.1% from 62.2% in June. Average hourly earnings, meanwhile, increased 0.5% for the month, higher than June’s upwardly revised monthly wage gains of 0.4%. On an annual basis, earnings were up 5.2%, on par with June's year-over year increase.
Pantheon Macroeconomics Chief Economist Ian Shepherdson pointed out that labor force participation has stalled, with the rate for men falling markedly for reasons not yet clear.
“At the same time, labor demand has softened but it is still strong, allowing wage gains to develop renewed traction,” Shepherdson wrote in a note to clients. “This, in turn, means that we will have to lift our forecast for the wage-sensitive components of the core CPI and PCE."
The headline consumer price index index for July is expected to show a slight moderation on Wednesday, mainly helped by lower gas prices. The figure, however, is still expected to show inflation climbing at the highest pace in four decades.
“Falling gas prices should bring some relief to July CPI inflation, though we expect core price pressures to remain firm,” Bank of America stated in a note Friday.
Economists surveyed by Bloomberg forecast the broadest measure of CPI rose by 8.7% in July, a number that would mark a slight cooldown from 9.1% in June. Over the month, CPI is expected to show an increase of 0.2%, up from 1.3% last month.
But the core measure of the index, which excludes volatile food and energy prices, likely accelerated to 6.2% on an annual basis, compared to 5.9% during prior month.
At the wholesale level, the producer price index or PPI, which measures the change in the prices paid to U.S. producers of goods and services, is expected to have cooled. On a monthly basis, economists forecast the PPI for July rose 0.3% expected compared to 1.1% during prior month and 10.4% expected on the year versus 11.3% in June.
Elsewhere in inflation releases, investors will assess readings on unit labor costs, or the sum of all wages paid to employees and results of the University of Michigan’s inflation expectations survey.
On the earnings front, the reporting season is winding down, with roughly 87% of the companies in the S&P 500 having reported actual results for the second quarter year-to-date.
Monday: No notable reports scheduled for release.
Tuesday: NFIB Small Business Optimism, July (89.5 expected, 89.5 during prior month), Nonfarm Productivity, Q2 preliminary (-4.5% expected, -7.3% during prior quarter), Unit Labor Costs, Q2 preliminary (9.5% expected, 12.6% during prior quarter)
Wednesday: MBA Mortgage Applications, week ended August 5 (1.2% during prior week), Consumer Price Index, month-over-month, July (0.2% expected, 1.3% during prior month), CPI excluding food and energy, month-over-month, July (0.5% expected, 0.7% during prior month), CPI year-over-year, July (8.7% expected, 9.1% during prior month), CPI excluding food and energy year-over-year, July (6.2% expected, 5.9% during prior month), CPI Index NSA, March (296.584 expected, 296.311 during prior month), CPI Core Index SA, July (295.686 expected, 294.354 during prior month), Real Average Hourly Earnings, year-over-year, July (-3.6% during prior month, revised to -3.4%), Real Average Weekly Earnings, year-over-year, July (-4.4% during prior month, revised to -4.0%), Wholesale Inventories, month-over-month, June final (-1.9% expected, 1.9% during prior month), Wholesale Trade Sales, month-over-month, June (0.5% during prior month), Monthly Budget Statement (-$88.8 billion)
Thursday: Initial jobless claims, week ended August 6 (265,000 expected, 260,000 during prior week), Continuing claims, week ended July 30 (1.425 million expected, 1.416 during prior week), PPI final demand, month-over-month, July (0.3% expected, 1.1% during prior month), PPI excluding food and energy, month-over-month, July (0.4% expected, 0.4% during prior month), PPI excluding food, energy, and trade, month-over-month, July (0.4% expected, 0.3% during prior month), PPI final demand, year-over-year, July (10.4% expected, 11.3% during prior month), PPI excluding food and energy, year-over-year, July (7.7% expected, 8.2% during prior month), PPI excluding food, energy, and trade, year-over-year, July (5.9% expected, 6.4% during prior month)
Friday: Import Price Index, month-over-month, July (-0.9% expected, 0.2% during prior month), Import Price Index excluding petroleum, month-over-month, July (-0.4% during prior month), Import Price Index, year-over-year, July (9.5% expected, 10.7% during prior month), Export Price Index, month-over-month, July (-1.0% expected, 0.7% during prior month), Export Price Index, year-over-year, March (18.2% during prior month), Bloombgerg August United States Economic Survey, University of Michigan Consumer Sentiment, August preliminary (52.4 expected, 51.5 during prior month), U. of Mich. Current Conditions, August preliminary (57.5 expected, 58.1 during prior month), U. of Mich. Expectations, August preliminary (48.8 expected, 47.3 during prior month), U. of Mich. 1 Year Inflation, August preliminary (5.1% expected, 5.2% during prior month), U. of Mich. 5-10 year Inflation, August preliminary (2.8% expected, 2.8% during prior month)
Monday: 3D Systems (DDD), ACADIA Pharmaceuticals (ACAD), Allbirds (BIRD), American International Group (AIG), Barrick (GOLD), BioNTech (BNTX), Dominion Energy (D), Elanco Animal Health (ELAN), Energizer (ENR), Freshpet (FRPT), GoodRx (GDRX), Groupon (GRPN), Lemonade (LMND), Marriott Vacations (VAC), News Corp (NWSA), Novavax (NVAX), Palantir Technologies (PLTR), Radware (RDRW), SmileDirectClub (SDC), Switch (SWCH), Take-Two Interactive Software (TTWO), Tanger Factory Outlet Centers (SKT), Tyson Foods (TSN), Upstart (UPST), Vroom (VRM)
Tuesday: Akamai Technologies (AKAM), Bausch Health (BHC), Bloom Energy (BE), Capri Holdings (CPRI), Carlyle Group (CG), Coinbase (COIN), Dine Brands (DIN), Emerson (EMR), Grocery Outlet (GO), H&R Block (HRB), Hilton Grand Vacations (HGV), Hyatt Hotels (H), IAC (IAC), iRobot (IRBT), Norwegian Cruise Line (NCLH), Planet Fitness (PLNT), Ralph Lauren (RL), Roblox (RBLX), Spirit Airlines (SAVE), Sysco (SYY), The Trade Desk (TTD), Unity Software (U), Warner Music Group (WMG), World Wrestling Entertainment (WWE), Wynn Resorts (WYNN)
Wednesday: AppLovin (APP), Coherent (COHR), Coupang (CPNG), Dutch Bros(BROS), Fox Corp. (FOXA), Jack in the Box (JACK), Red Robin Gourmet (RRGB), Sonos (SONO), Traeger (COOK), Wendy's (WEN), Wolverine World Wide (WWW)
Thursday: AerCap (AER), Baidu (BIDU), Brookfield Asset Management (BAM), Canada Goose (GOOS), Cardinal Health (CAH), Dillard's (DDS), Flower Foods (FLO), LegalZoom (LZ), Poshmark (POSH), Rivian Automotive (RIVN), Six Flags (SIX), Solo Brands (SOLO), Toast (TOST), Utz Brands (UTZ), Warby Parker (WRBY), W&T Offshore (WTI), Wheaton Precious Metals (WPM)
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc