Thread by @RickRieder

As we approach the @federalreserve’s monetary policy conference at #JacksonHole this week, a question we’ve been asking ourselves is whether the abundance of survey-based, and goods-oriented, #economic data may be overstating the weakness in the #economy as a whole?

Without question, many broad-based surveys, including those focused on #ConsumerConfidence and small #business optimism, are painting a very bleak picture of the #economic trajectory.

And at the same time, many goods/manufacturing sector data points are portending continued significant weakening of the sector.

Yet, when we look at the #services sector, which is roughly 70% of consumption and about 50% of aggregate #GDP in the U.S., we see that portion of the #economy not only appears to be more resilient, but there are fewer high-frequency data points on which to draw conclusions.

In our view, part of what we’re witnessing here is a recalibration (normalization) of the #economy toward longstanding pre-Covid trends, in which goods #spending moderates and #services spending (much greater than goods) recaptures trend.

So, despite the very negative picture coming from the survey/goods diffusion data, some of the information we’re seeing from #CorporateEarnings data depicts a healthy #consumer overall…

…and also reinforces the shift in #spending from goods to services, which may be sustained, especially if gas (and other) #prices moderate further.

Furthermore, doesn’t this persistent service-sector recovery help explain why the #LaborMarkets continue to remain strong, and in fact are running at the highest rate of job gains in greater than 20 years? Will strong job growth persist next Friday?

What are the implications for Fed Jackson Hole commentary and the September #FOMC meeting?

As my colleague Bob Miller has argued, we think #ChairPowell could signal a wider aperture in the Committee’s reaction function, since staking out some conditionality going forward seems sensible to us given the unprecedented nature of this particular cycle.

And while data dependency continues to be the key watchword, the #FOMC is likely to hike the #Fed funds policy rate by 75 basis points in September (for the third time in a row)…

…to bring the policy rate range to between 3.0% and 3.25%, which should be seen as the beginning of moderately #restrictive levels.