From November to August, a Honey Crisp is the best apple you can get. It’s the size of a small pumpkin, more dependable than Cal Ripken, and keeps like fine wine.
But then September comes around, SweeTangos hit the shelves, and Honey Crisps suddenly seem bloated, mundane, and—let’s be honest—overpriced. A SweeTango is simply divine. You can’t capture its splendor in words, though Applerankings.com takes a good run at it. Really, do yourself a favor and get one while they’re in season.
Why are we opening this economics newsletter with apples? To lighten the mood before diving into what was a fairly dismal week of news and data.
Inflation? High. Treasury yields? Highest in decades. Diesel prices? Highest ever. With no end in sight to the trade war with Canada and the technically-not-a-war with Iran, a rate hike now looks all but certain at the Fed’s meeting next week.
Tuesday
Oil Stuff
Diesel prices surged to an all-time high this past week, with real-time data showing the national average now above $6.00/gallon for the first time ever. Diesel hit $9.99/gallon at some pumps in California and presumably would have gone higher if the signs could accommodate another digit.
Gas prices also rose and, at $4.30 per gallon, have never been this high this late in the year.
Given that oil prices have surged back to around $100/barrel, gas and diesel prices will likely rise again next week.
Needless to say, this is bad news on the inflation front.
NFIB Small Business Optimism Index
Small business owner optimism worsened in August but is still in relatively decent shape. The comments on these surveys tend to be more interesting than the reading itself, and this one was no exception. Big issues are difficulty finding good workers, high interest rates, and uncertainty.
TSA Checkpoint Travel Numbers
It was a fairly strong Labor Day weekend for air travel, according to TSA gate check numbers, but the total number of flyers is still down about 3.5% since the middle of August.
Wednesday
Mortgage Applications
Mortgage applications fell again, continuing their downward trajectory. Given rates, don’t expect this to change anytime soon.
Thursday
President Trump Promises $5,000 Stimulus Checks
President Trump vowed to send every U.S. adult a $5,000 check, just as long as the GOP holds the House in November’s election. He suggested the checks would be paid for with tariff revenues, but given the $1.3 trillion estimated cost, that’s not going to work out.
Aside from tariff revenues not covering the cost of such a stimulus package, this would 1) require congressional approval, 2) drive up inflation, 3) massively add to the national debt, and 4) be as unlikely as all the previously promised stimulus checks that didn’t materialize.
Producer Price Index
Prices received by domestic producers rose pretty sharply in August, with the increase concentrated in goods rather than services. This is less important than the Consumer Price Index but still suggests that inflation is picking up.
Existing Home Sales
Sales of existing homes (i.e., not newly built) fell 2.0% in August and are down slightly over the past year. At the risk of sounding repetitive: blame rates.
Mortgage Rates
Mortgage rates rose again. The average 30-year fixed is now up to 6.76% and will be even higher next week.
Jobless Claims
Initial jobless claims stayed low. If you’re ever in need of good economic news, this is the place to start (at least over the past year or so).
Friday
Consumer Price Index
Consumer prices rose faster than expected in August. The relatively large increase had a lot to do with gas prices, but core prices (excludes food and energy) also jumped, rising at the fastest pace since May. That, combined with the fact that gas prices are now higher than they were in August, is bad news on the inflation front.
The big takeaway: there’s now a roughly 90% chance of a rate hike at the Fed’s meeting next week, according to markets.
Treasury Yields Keep Ripping
Treasury yields continued to soar this week, with 10-year yields—which heavily dictate mortgage rates—ending Thursday at levels not seen since 2007 (with the exception of a single day in October 2023). While yields have fallen somewhat this morning, they remain well above 4.9%.
Which is to say, borrowing costs are not falling in the near future.
University of Michigan Consumer Sentiment Index
Consumer sentiment fell pretty sharply in early September, and inflation expectations jumped to the highest level since June. Unsurprisingly, this has a lot to do with tariffs and oil prices.
Links of the Week
Insuring Against Success? Are Universities Using Prediction Markets to Fund Their Athletic Compensation Schemes? (Economic Forces)
Will AI soon lead to double-digit growth? (Ghosts of Electricity)
Liberalism needs a new philosophy of immigration (Noahpinion)
Final Thoughts
After this week, Anirban’s outlook for the economy is: Worse
The biggest thing that happened this week is diesel prices rising above $6/gallon for the first time ever. That’s going to create cost pressures throughout much of the economy. As a result, the Fed must hike.
After this week, Zack’s outlook for the economy is: Worse
Between rising rates and record high diesel prices, there’s just not much to like.
Looking Ahead
Next week is all about retail sales data, some housing stats, and the Fed’s next meeting.