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The Producer Price Index for Final Demand was unchanged in July.



July 2018 Producer Prices and Mortgage Apps, August UI Claims

August 9, 2018
By Robert A. Dye, Ph.D., Daniel Sanabria

Upstream Prices Sedate in July

*     The Producer Price Index for Final Demand was unchanged in July.
*     Mortgage Applications decreased by 2.6 percent for the week of July 27.
*     Initial claims for unemployment insurance fell by 6,000, to hit 213,000 for the week ending August 4.

The Producer Price Index for Final Demand was unchanged in July. This was the second month of moderating price gains after a 0.5 percent surge in the headline PPI in May. The question of the summer is…what about import tariffs? In July we see no evidence of broad-based price pressure on industries due to tariffs. This stands in stark contrast to some dire anecdotal comments seen in other reports. The sedate PPI report for July does not mean that there is no pressure, it simply means that it is not showing up in the headline PPI series. The broader the application of tariffs, the higher they are and the longer they are in place the more likely we are to see their stamp on macroeconomic data, but for now, it is not there. Individual companies are definitely feeling the pressure from tariffs; however, most companies, and most consumers are not. Both the foods and energy sub-indexes for the PPI eased in July. Some energy prices increased in June; however, the electric power index fell 1.6 percent for the month. The core series for final demand (less food, energy and trade) was up by 0.3 percent for the second month in row, and is up 2.8 percent over the previous 12 months. Headline PPI was up 3.3 percent in July over the previous year, down a tenth from the year-over-year reading for June.

Initial claims for unemployment insurance fell by 6,000, to hit 213,000 for the week ending August 4. Through July the trend in initial claims was down, to an exceptionally low level. Continuing claims gained 29,000, to hit 1,755,000 for the week ending July 28, also still exceptionally low.

Total mortgage applications fell by 2.6 percent for the week of July 27, as both purchase and refi apps eased. Refis were down 1.7 percent for the week. Purchase apps dipped by 3.1 percent, the third consecutive weekly decline. On a four-week moving average basis, purchase apps are still up 3.0 percent over a year ago. But the recent trend looks weak, consistent with a housing market that is losing some steam. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.

Market Reaction: Equity markets opened with losses. The yield on 10-Year Treasury bonds eased to 2.93 percent. NYMEX crude oil is up to $67.10/barrel. Natural gas futures are down to $2.95/mmbtu.

For a PDF version of this report, click here: July 2018 Producer Prices and Mortgage Apps, August UI Claims

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