3 data points that could impact how big of a Fed rate cut the market gets next month

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Following cooler-than-expected producer price data Tuesday morning, the market's 50/50 odds between a quarter-point Federal Reserve interest rate cut in September and a half-point cut tilted further toward the bigger move. That sparked a big rally in stocks, with the Nasdaq leading the way higher and jumping more than 2% in afternoon trading. Here are the details of three important data points that can help us gauge the health of the U.S. economy and whether companies can continue to thrive. 1. Inflation The inflation numbers that got everyone so excited Tuesday were the 2.2% year-over-year increase in July's producer price index (PPI) and the ex-food-and-energy core rate gain of 2.4%. Both annual readings were higher in the prior month, and lower than expectations. While the PPI isn't as closely monitored as the CPI, the consumer price index, it is important to watch because it tracks input costs at the wholesale level and can therefore indicate potential price actions corporations may take in the future to protect profit margins. The CPI, which tracks the things consumers buy and pay for, is out Wednesday. The headline number for July, according to FactSet, is expected to remain flat at 3% on a year-over-year basis. The core rate is expected to be a bit lower at 3.2%. The cost of shelter, which has been one of the stickiest areas of consumer inflation, will be a key component to watch when the numbers are released before the opening bell. The Fed has indicated that shelter costs weigh heavily in their thinking on rate cuts. While still elevated, shelter has recently been trending lower. We'll see Wednesday morning. Thursday's brings the latest report on retail sales. 2. Earnings Home Depot on Tuesday provided another look at the economy. The home improvement retailer cut its full-year outlook for same-store sales, or what analysts refer to as comps. Management blamed "higher interest rates and greater macroeconomic uncertainty" for pressuring consumer spending on home improvement projects. The Dow stock initially traded lower but then turned higher. That was a sensible reversal, seeing as Fed policy rates are, indeed, expected to move lower, which should make mortgages and home equity lines of credit more affordable down the road. That's a positive for Home Depot and Club name Stanley Black & Decker . 3. Spending Stifel said its most recent U.S. consumer survey indicates some of the same consumer concerns flagged by Home Depot. "Spending intentions remain positive but have weakened considerably over the last six weeks compared to YTD averages through late June," the analysts said, adding that back-to-school spending plans point to a decline versus last year. "Spending intentions weakened across nearly all income levels," Stifel said in a note late Monday. The most notable hit was seen in consumers making less than $50,000 per year. Those making over $75,000 per year expect to increase their spending but at a slower rate than we've seen recently. The Stifel analysts also noted that consumers are looking to trade down to less expensive options and private-label brands. Trade-down intentions were most pronounced in the packaged food category. In line with our Club view, they see Costco as a big winner — after all the membership club not only provides amazing value by selling name brands in bulk, but it also has incredible private label offerings through its Kirkland Signature line. The intense focus on packaged food could bode well for Amazon as well. The analysts said, "Since 2019, Amazon and Costco have gained the most share of U.S. grocery sales, driving 23% of category growth despite accounting for 12% of U.S. grocery sales." Bottom line The U.S. is a consumer-driven economy, and private consumption generates about two-thirds of American gross domestic product. So, spending intentions and inflation levels are critical to predicting the path of economic growth — and in turn, the Fed's next move. The recent data certainly supports the idea of a rate cut at the Fed's mid-September meeting. However, that's weeks away, we know things can turn on a dime in the data and the stock market. Lower rates can certainly impact the stock market — but when it comes to picking individual stocks, we remain focused on earnings. Lowe's reports next week, and we'll see if management sees a consumer headwind similar to Home Depot. If the complete give-back of the recent rally in the small-cap Russell 2000 , while the broader S & P 500 rebounded, tells us anything, it's that a move made on rate expectations is only sustainable should lower rates translate into higher earnings. That's happening for the bigger firms but generally not for the smaller Russell 2000 companies — which are far more sensitive to the economy and don't always do well when growth is slowing, even if funding becomes more affordable. (Jim Cramer's Charitable Trust is long SWK, COST, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. People walk along Wall Street outside of the New York Stock Exchange (NYSE) on August 05, 2024, in New York City. Spencer Platt | Getty Images News | Getty Images