Yahoo FinanceAmazon Prime Day, Inflation data: What to know this week
Investors this week are set to eye a number of economic data prints, including an update on the Federal Reserve's preferred measure of inflation — personal consumption expenditures (PCE). Corporate events will include Amazon's annual shopping extravaganza.
This week's inflation report from the U.S. Bureau of Economic Analysis on PCE will take on additional significance after the Fed upgraded its forecast on inflation for this year and next. The Fed's updated median outlook for inflation suggests core PCE, which excludes volatile food and energy prices, will rise by 3.0% this year and by 2.1% in 2022, with both forecasts up from the 2.2% and 2.0%, respectively, the central bank saw previously in March.
The upwardly revised outlook came following a plethora of reports chronicling the surge in demand for both inputs and end consumer goods amid the U.S. economic recovery. The central bank's new forecast for inflation also coincided with an upgraded outlook on U.S. economic growth, with the Fed now seeing real gross domestic product (GDP) rising by 7.0% this year versus the 6.5% growth rate seen previously. And the Fed also suggested it may raise interest rates twice by the end of 2023, with the moves, if realized, set to help stave off a sustained and unchecked surge in inflation.
Still, a number of Fed officials, including Fed Chair Jerome Powell, have clung to the notion that the multi-decade high surges in inflation seen so far this spring will ultimately prove transitory. And indeed, many of the categories that saw the biggest price increases — like autos, airfares and gas — are those most closely pointing to a temporary surge in reopening-related demand spikes.
"Much of the rise in inflation in major advanced economies from March to May has reflected the fact that prices fell in the same period a year ago," Simon MacAdam, senior global economist for Capital Economics, wrote in a note. "That said, depending on how you measure it, almost half of the jump in inflation in the U.S, and UK over the past three months has reflected a ‘genuine’ pick-up in inflation. For the most part, base effects are unlikely to be a significant driver of inflation in the year ahead."
But these points have only somewhat taken the edge off the jarringly quick rises in inflation seen recently: Core consumer prices, excluding food and energy, surged in May by 3.8% from a year ago, or by the most since 1992 — and producer prices excluding food, energy and trade rocketed by a record 5.3% year-on-year.
Consensus economists are looking to see that PCE inflation accelerated on a year-on-year basis in May over April. Friday's report will likely show a 3.9% jump in overall PCE over last year, up from April's 3.6% rise, according to Bloomberg consensus data. That would mark the fastest annual rise in PCE inflation since 2008. Core PCE is expected to climb 3.4% year-on-year after a 3.1% increase in April, with the expected rate of change set to mark the fastest jump since 1992.
"The strength of price pressures owing to the supply/demand imbalance in commodities far exceeded even the wildest of inflation forecasters' imagination," Bank of America economist Michelle Meyer wrote in a note. "However, the shortages coupled with the rebound in beaten-down travel-related components amid the reopening in the economy largely reflect transitory price pressures. As our new U.S. transitory inflation meter reveals, transitory inflation is now at historically elevated levels."
"That said, the risk is that some of this transitory strength will feed into persistent inflation, which we believe has also been improving," she added. "Keep an eye on 1) sticky inflation measures, 2) wage growth, and most importantly, 3) long run inflation expectations."
Amazon Prime Day
One of the key company events taking place this week will be Amazon Prime Day, the e-commerce giant's annual sales extravaganza. This year's Prime Day will take place starting at midnight Pacific Time on June 21 and continue until 11:59 p.m. on June 22.
As usual, the deals will be open to subscribers of Amazon's $119 per-year Prime membership. Amazon CEO Jeff Bezos disclosed in the company's annual shareholder letter in April that the company had more than 200 million members worldwide.
In 2020, Prime Day was moved from the summer to October in light of the COVID-19 pandemic. This year, Amazon pulled forward the event slightly, offering its usual variety of sales on electronics, home goods and other items in June rather than in July. The event has also typically included an abundance of markdowns on Amazon's own branded hardware devices, including Echo smart speakers. Amazon touted that more than 2 million deals would be available over the course of the event this year.
Even given last year's pandemic-related disruptions, Amazon saw a record period of sales during the shopping holiday. While Amazon does not typically reveal the total value of goods sold during its Prime Days, the company said its third-party sellers topped $3.5 billion in sales across 19 countries over the course of the two-day event last October.
"We project total Prime Day revenue of ~$8.4 billion this year, up 12% from our estimated ~$7.5B in 2020 when the event was in October and pulled forward holiday demand," JPMorgan analyst Doug Anmuth wrote in a note. "This year Prime Day is taking place a few weeks ahead of its usual mid-July timing, we believe so that it does not conflict with the Tokyo Summer Olympics or the strong summer travel season post-vaccinations."
Other firms have placed bets on an even bigger Prime Day, with Adobe estimated consumer spending during the event could top $11 billion. Adobe also estimated the last Prime Day in October brought in $10.4 billion over the two-day event.
For the Amazon consumer and investor community, one possible update to keep an eye on in the coming months is a potential increase in the cost of a Prime membership, which at least some Wall Street analysts suggest may be coming.
"We believe the pandemic may have delayed a Prime price increase in 2020, and that could now come over the next few quarters to offset incremental costs of Prime 1-day shipping, Amazon Fresh/Whole Foods free shipping, and ongoing FC [fulfillment center] expansion," Anmuth said. He estimated an Amazon Prime subscription is worth about $1,000 per year to consumers, compared to the $119 the company charges customers for the annual membership and that confers benefits including free shipping, grocery discounts and access to Amazon Prime Video.
Shares of Amazon have risen more than 7% so far in 2021 to date, underperforming against the S&P 500's about 11% rise.
Economic Calendar
Monday: Chicago Fed National Activity Index, May (0.7 expected, 0.24 in April)
Tuesday: Existing home sales, May (5.71 million expected, 5.85 million in April); Richmond Fed Manufacturing Index, June (18 expected, 18 in May)
Wednesday: MBA Mortgage Applications, week ended June 18 (4.2% during prior week); Current Account Balance, Q1 (-$207.0 billion expected, -$188.5 billion during prior quarter); Markit U.S. Manufacturing PMI, June preliminary (61.5 expected, 62.1 in May); Markit U.S. Services PMI, June preliminary (69.9 expected, 70.4 in May); Markit U.S. Composite PMI, June preliminary (68.7 in May); New home sales, May (875,000 expected, 863,000 in April)
Thursday: Advance Goods Trade Balance, May (-$87.7 billion expected, -$85.2 billion in April); Wholesale inventories, May preliminary (0.8% in April); Durable goods orders, May preliminary (3.0% expected, -1.3% in April); Durable goods orders excluding transportation, May preliminary (0.8% expected, 1.0% in April); Non-defense capital goods orders excluding aircraft (0.7% expected, 2.2% in April); Non-defense capital goods shipments excluding aircraft (0.7% expected, 0.9% in April); GDP annualized, quarter-over-quarter, Q1 third print (6.4% expected, 6.4% in prior print); Personal consumption, Q1 third print (11.3% expected, 11.3% in prior print); GDP Price Index, Q1 third print (4.3% expected, 4.3% in prior print); Initial jobless claims, week ended June 19 (380,000 expected, 412,000 in prior print); Continuing claims, week ended June 12 (3.518 million in prior print); Kansas City Fed Manufacturing Activity Index, June (26 in prior print)
Friday: Personal income, May (-2.8% expected, -13.1% in April); Personal spending, May (0.3% expected, 0.5% in April); PCE Deflator, month-on-month, May (0.5% expected, 0.6% in April); PCE Deflator, year-on-year, May (3.9% expected, 3.6% in April); PCE Core Deflator, month-over-month (0.6% expected, 0.7% in April); PCE Core Deflator, year-over-year (3.4% expected, 3.1% in April); University of Michigan Sentiment, June final (86.5 expected, 86.4 in May)
Earnings Calendar
Monday: N/A
Tuesday: Plug Power (PLUG) before market open
Wednesday: N/A
Thursday: Darden Restaurants (DRI) before market open; Fedex (FDX), Nike (NKE) after market close
Friday: CarMax (KMX) before market open
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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