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September
15
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Week In Review

Inflation

Producer prices rose 0.2% in August while consumer prices rose 0.4%. Year-over-year, producer prices are up 2.4%. Consumer prices have risen 1.9%. Core prices (those excluding food and energy) rose by less than the headline numbers, both in August and over the last twelve months.

Our Take

Even the Fed is starting to acknowledge that low inflation numbers may not be as “transitory” as they previously believed. Despite the energy-fueled rise in consumer prices in August, inflation remains stubbornly below the Fed’s target and expectations are for a continued benign inflation environment.


Retail Sales

Retail sales fell 0.2% in August and were revised lower in both July (0.6% revised to 0.3%) and June (revised from 0.3% to -0.1%).

Our Take

The U.S. Census Bureau, which reports retail sales, seems challenged to arrive at accurate numbers. They reported weak sales in June, revised them to very strong in July, and now revised them back down in August. The recent hurricanes will likely wreak havoc on future numbers, meaning it will be challenging to get a clear picture on consumer strength in the near future. This month’s report, however, is clearly negative.


Municipals

Hartford, Connecticut received downgrades from ratings agencies this week. Moody’s Investors Service downgraded Hartford’s general obligation debt rating two notches from B2 to Caa1 this week. Moody’s also placed the debt rating under review for possible downgrade as well. S&P lowered Hartford’s rating from BB to B-. Mayor Luke Bronin warned Connecticut lawmakers that the city would pursue bankruptcy if Hartford did not receive state aid by November. Connecticut does not have a budget in place for the fiscal year that began in July.

Our Take

This week’s Hartford downgrades occurred two months after previous downgrades in July. Hartford continues to struggle with a budget deficit and has relied on short-term borrowing to pay its bills while the city waits for state aid to arrive. Talk of bankruptcy and debt restructuring is not good news for bondholders. Connecticut lawmakers must work to end the budget impasse and Hartford must focus on finding long term solutions to its fiscal problems.