Here are the economic and market highlights for the week:
- Cooling inflation readings opened the door even wider to a September rate cut. The CPI Index, a broad measure of prices for goods and services, rose 0.20% in July pushing the YOY inflation rate to 2.90%. That was its lowest reading since March 2021. When you remove food and energy from the basket, core CPI rose just 0.20% month-to-month. The inflation picture decelerated even more than the headline inflation figures suggested, however, due to the fact that shelter costs alone accounted for 90% of the increase. Shelter costs rose 0.40% during the month and were up 5.30% from a year ago. The precursor to consumer inflation also remained tame in July with the PPI index increasing just 0.10%. That came despite a 0.60% jump in final demand goods prices, their biggest gain since February, which itself was driven primarily by a 1.90% surge in energy overall, including a 2.80% increase in gasoline. A 0.20% drop in services, their biggest drop since March 2023, helped offset the rise in goods.
- Despite fears the consumer would dry up following the weakness seen in recent jobs reports, consumers continued to spend. Retail sales jumped 1.00% in July, exceeding estimates for a 0.30% rise. Strong growth was noted in a number of categories. Motor vehicle and parts dealers led the way, up 3.60%. Electronics and appliance stores, building material and supply stores, and health and personal care also moved higher, up 1.60%, 0.90%, and 0.80%, respectively. With consumers accounting for roughly two-thirds of the economy, it was a strong start for Q3 GDP.
Markets Swing from “Oh No” to “Good to Go”
Stocks stormed back this week on strong consumer spending and signs that inflation is continuing its path towards the Fed’s goal of 2%. Retail sales rose 1.00% in July, handily beating estimates for a 0.30% increase. Meanwhile, both the CPI and PPI indices showed inflationary pressures continued to ease during the month, opening the door to a Federal Reserve interest rate cut in September. As a result, market bulls piled back into big tech, betting once more big tech stocks will be big winners in a low interest rate and AI dominant world. The tech heavy Nasdaq Composite Index led the major indices, up 5.30% on the week. The S&P 500 followed with a 3.93% gain while the more industry heavy Dow Jones Industrial Average scored a more modest 2.94% gain as the latest batch of economic data reinforced the market’s “soft landing” scenario remains in play.
This week’s rally brought the major stock indices within a whisker of their all-time July highs. That is quite the rebound considering the market’s recent swoon over concerns that a much harder landing was in store for the economy with jobs, manufacturing, and housing all flashing signs of weakness. Investors have regained their confidence over the past week, however, as the data has struck the right tone by being neither too hot nor too cold. At this point, a 0.25% Fed rate cut looks likely at the central bank’s Sept. 17-18 meeting now that inflation has dropped below 3% and is trending progressively towards the Fed’s target. Should the Fed cut in September, it will be the central bank’s first rate cut since March 2020. While the move will be a welcome sign, the reality is that it will be more symbolic than it will be material. A 0.25% rate cut simply won’t do much to drive economic growth. Economists believe that 2.00%-3.00% in cuts will be needed to make a meaningful impact. With the time it will take the Fed to accumulate that in the way of cuts, along with the lag effect, the data is likely to deteriorate further and with markets nearing all-time highs, volatility is likely to emerge again despite having returned to calm this week.
The Week Ahead
- S&P Flash PMIs
- Home Sales
National Navajo Code Talkers Day: August 14, 2024
Earlier this week, the U.S. observed National Navajo Code Talkers Day. The holiday was instituted in 1982 by President Ronald Reagan and occurs annually on August 14th. During the fighting in the Pacific Theater during World War II, the U.S. Marines relied on a top-secret code developed by the Navajo Nation. It was the only unbreakable code in the history of warfare, and it’s responsible for helping secure Allied victories across the Pacific, including the iconic Battle of Iwo Jima.
The Beginning
The idea of working with the Navajo Nation during the war was conceived by Philip Johnston, a World War I veteran who was the son of a missionary and spent much of his childhood on a Navajo reservation. Johnston became so fluent in the Navajo language that he was asked at age nine to serve as an interpreter for a Navajo delegation sent to Washington, D.C., to lobby for Native American rights. Johnston understood the need for an unbreakable code during wartime and presented his idea for using the Navajo language in World War II as a means to create a quicker and more secure way to send and receive messages. While it took some convincing, he eventually received the support of the U.S. Marines. The original group of Navajo Code Talkers included 29 Marines from the Navajo Nation in 1942 and grew to around 420 over the course of the war.
The Code
The complexity of the Navajo language combined with the fact that it was spoken by relatively few people outside the Navajo community and remained mostly “unwritten” made it ideal for transmitting top secret messages that the enemy could not decipher. The Navajo Code Talkers used their native language to create a code that was faster than code-breaking machines and reduced the need for encryption and decryption. Their system enabled the Code Talkers to translate three lines of English in 20 seconds, not 30 minutes as was common with existing code-breaking machines.
The Code Talkers created a dictionary of words from their native language for military terms and phonetic equivalents for letters and numbers. For example, a torpedo plane was called “tas-chizzie” which means “swallow” in Navajo. A bomber was called “jay-sho” which means “buzzard,” and a fighter plane was called “da-he-tih-hi” which means “chicken hawk.” The code talkers also designed a system that signified the twenty-six letters of the English alphabet. For example, the letter A was “wol-la-chee,” which means “ant” in Navajo, and the letter E was “dzeh,” which means “elk.”
The Code Talkers participated in every major Marine operation in the Pacific Theater, giving the Marines a critical advantage. During the battle for Iwo Jima, six Navajo Code Talker Marines successfully transmitted more than 800 messages without error within the first 48 hours. After the war, Japan’s own chief of intelligence admitted the Navajo code was the one code the Japanese cryptographers were never able to break. The Navajo code talkers were sworn to secrecy and the program and the code remained classified until 1968.
Honoring Code Talkers Act of 2001
The “Honoring the Code Talkers Act” called for recognition of the Native Americans who helped the Allies win the war. The act authorized President George W. Bush to award a Congressional Gold Medal to each of the original twenty-nine Navajo Code Talkers and subsequent Code Talkers received the Congressional Silver Medal.
National Navajo Code Talkers Day is not just a day of remembrance, but it is also a celebration of the unique and enduring contributions of the Navajo people to American history.