MANHATTAN (CN) — The collective weight of again-rising inflation, spiking oil prices and historical union strikes took their toll on Wall Street but did not completely wipe investor gains from earlier in the week from the books.
The three major U.S. indices managed to creep upward in the early half of the week, but by Friday the major news of the week — the United Auto Workers union strike — caused them to dip back down. The closing bell on Friday saw the Dow Jones Industrial Average gain just 42 points, while the S&P 500 and Nasdaq lost seven points and 53 points, respectively.
The walkout of nearly 13,000 employees, the union’s first simultaneously against the Big Three automakers, has Wall Street and major business groups taking notice of the potential impact on the economy.
Unsurprisingly, the Chamber of Commerce denounced the strike and blamed the Biden administration for emboldening unions.
“The UAW strike and indeed the ‘summer of strikes’ is the natural result of the Biden administration’s ‘whole of government’ approach to promoting unionization at all costs,” Chamber President Suzanne P. Clark said in a statement.
Analysts are hopeful the limited walkout won't hamstring the economy with a new string of supply chain problems. “The impact on overall GDP should be limited, but if production backlogs create new supply shortages then strikes could drive prices higher,” wrote Paul Ashworth at Capital Economics.
Prices have already begun to tick up again, according to government reports this week. On Wednesday, the U.S. Bureau of Labor Statistics released its monthly consumer price index, which came in hotter than predicted with a 0.6% increase for last month’s prices.
The increase was a big jump from the 0.2% increase seen in July, and headline inflation rebounded to 3.7% from July’s 3.2% headline. Core inflation, which discounts the variable prices of food and energy, rose by 0.3% last month, slightly higher than what analysts had forecast.
Some items continued to drop in price, such as used cars and recreation. Overall the data didn’t give Wall Street a rallying point but didn’t rattle investors either.
“This isn’t the Goldilocks number that investors were hoping for, but markets can still trade in a range,” said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, earlier in the week. “As long as the economy remains resilient and inflation doesn’t re-ignite, the market can rally into year-end, once we get past the seasonally weak months of September and October.”
On Thursday, the producer price index showed a higher-than-expected 0.7% increase in August, compared with the 0.4% increase in July.
The combined resurgence in consumer and producer inflation has some worried the Federal Reserve may resume interest rate hikes next week or at its last meeting of the year after many had forecast the central bank would keep rates where they were.
Gasoline prices was by far the biggest contributor to the overall number, accounting for about half the total increase. Gas prices picked up 10.6% in August, with fuel oil gaining 9.1%; in July those prices had increased just 0.2% and 3%, respectively.
Energy prices also likely added to other ticket items, such as airline fares, which gained 4.9% after falling in July.
A recent surge in oil prices is to blame. On Friday, barrels of crude traded for about $91 on the West Texas Intermediate exchange. That's not quite as high as the $92-per-barrel price seen last fall, but is certainly a big jump compared to two months ago, when barrels of crude on the exchange were trading at less than $70.
Fortunately, many are saying the gains in gas prices won’t be a major factor next month and that core inflation will likely continue to decelerate as rent prices remain a disinflationary tailwind to counteract energy. Shelter prices increased by only 0.3%, after six months of increases of at least 0.4%.
“For now … we don’t view the jump in the oil price as a game-changer for the broad inflation and policy rate outlook,” wrote Ben May, director of global macro research at Oxford Economics, in an investor’s note on Friday. “But it does give policymakers yet another headache, and may prompt some to approach policy easing with even more caution.”
Follow @NickRummell
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.
Additional Reads
-
UK’s new online safety law adds to crackdown on Big Tech companies September 20, 2023 -
Iowa defends ‘ag-gag’ laws before federal appeals court September 20, 2023
-
Fourth Circuit ponders if Maryland tax on digital ads is a tax or a hammer September 20, 2023 -
