Inflation Is Mostly Flat in June but Battered Indexes Show Signs of Life

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Economic Report Monitor #51
July 14th, 2020

The market ripped higher today on continued hope that a vaccine would quell the coronavirus pandemic earlier than expected. The Dow Jones Industrial Average jumped 2.13% with the S&P 500 and Nasdaq up 1.34% and 0.94%. With tech stocks lagging, the market favored the most battered companies beating out stocks that have fared better. In another bid of optimism, the latest CPI report for June 2020 signaled a resurgence in demand after three months of contraction.


In June, the CPI's monthly gain was 0.6%, a strong improvement that grew YoY CPI to 0.6%. Food and energy CPI caused most of the gains with the former up 0.6% and the latter up 5.1%. That left the YoY ex-food-and-energy CPI flat at 1.2%. Most notably in the food category the meat index continued its rise, up 4.8% in June and 20.4% in the last 3 months. In fact, all six major grocery store food group indexes rose over the past 12 months as stockpiling pressure continued through COVID-19's development. Reopening processes helped to spark rebounds in the hardest-hit industries. Apparel CPI grew 1.7% and Transportation Services CPI grew 2.1% with demand rebounding. On a yearly basis, both are still down -7.0%. Airline fare CPI also recovered 2.2% but is still down -27.2% with the overall public transportation CPI down -18.6%. Normalcy is still far off for the most impacted industries, but there are signs they have bottomed. The resurgence of COVID-19 cases could hinder this recovery.

The NFIB Small Business Optimism Index also showed signs of recovering demand as the index grew 6.2 pts to 100.6 on the back of a 37 pt increase in the expected real sales category to 13% well off the lows of -42%. The expectations of a recovery in cash flow lead employment to increase as well with a net 32% of respondents seeing an increase in job openings and a net 16% having plans to increase employment. Despite a recovery in revenue, earnings trends are still expected to be lower with a net -35% of respondents seeing lower earnings. This trend suggests that the recovery in consumer spending has yet to stimulate prices beyond costs. Once again, results show a bottoming out in the contraction in the economies of small businesses. Recovery to normal starts from here.

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