Today’s #JobsReport revealed an #economy that is producing #jobs at a slower pace than it has over the prior several months.
That said, a historic number of jobs have been created in this recovery since the fall of 2020, so a slowing in the pace of #growth isn’t unexpected.
Even with today’s somewhat slower rate of #hiring at 315,000 jobs for the month of August, the 3-month and 6-month average of #payroll gains has been 378,000 and 381,000 jobs, respectively, which is clearly indicative of slowing today from a point of strength.
Hence, while some doors for hiring are closing, with a modestly slowing #PayrollGrowth number, it clearly is at a fast enough pace to provide the @federalreserve the open-door to pursue its top priority: lower rates of current #inflation.
The #Fed has described a willingness, and in fact a desire to reduce demand in the system, with somewhat higher levels of #unemployment as an offshoot of the need to address high and persistent levels of #inflation head-on.
As a result, the door is still wide open for the #Fed to keep moving, and we also think this keeps the potential for a 75-bps hike at the September meeting still on the table.
In fact, this is our best guess for the September meeting’s #policy action, before the Fed can gradually reduce the size and pace of these #RateHikes.
Still, there are structural reasons that make bringing down #inflation difficult. These include the devastating and persistent war in the Ukraine, which has driven #energy and food prices to elevated levels, as a result of the risk of under-supply.
Further, #deglobalization stemming partly from this war, as well as tensions between China and the U.S., has contributed to price gains, as does lower #housing inventories in the U.S., which keep all-important #shelter costs high.
And as we witnessed today; still high levels of #wages (5.20% higher over the past year) contribute to higher net disposable #income and #spending power, but also to the gain in generalized prices.
In summary, #employment growth appears to be moderating, albeit very slowly today, but the #Fed clearly won’t fight this, and in fact will be more than willing to tolerate conditions for slowing broad #economic demand.
And despite being late to move last year, this year we think the #Fed has been right on point in bringing the policy rate quickly to neutral, and has the door wide open to get another 75 bps of hikes done to move into more #restrictive territory in September.
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Today’s much anticipated #CPI report provided greater detail on the current #inflation picture, and importantly, on what the @federalreserve is most focused upon these days, and unfortunately, it’s hard to see it as anything other than a #setback.
Recently, it has become clear that the #Fed is taking on a patient stance with regard to #inflation coming down, but today's report was further evidence that it may take even longer for inflation to finally reach the Fed’s 2% target level.
In fact, today’s data means #CorePCE on a year-over-year basis may not get to 2.5% at any point in 2024, and that’s with a wedge where #CoreCPI is running around 100 basis points higher. This meaningful surprise therefore forces us to reassess some views.
Yesterday’s #CPI data was highly anticipated by #markets, and particularly whether the elevated shelter #inflation from last month’s data ended up being a quirky aberration within service level inflation that is still quite a distance from the Fed’s 2% intermediate-term target.
What compounded this quandary last month was a very strange divergence between the Owner Equivalent Rent (#OER) calculation and that for general #Rent.
Those two data points typically migrate closely together over time, with a maximum divergence of 9 basis points (bps) in 2023.
As was widely expected, the @federalreserve today halted the most aggressive policy rate #HikingCycle since 1980, leaving the Fed Funds range unchanged at 5.0% to 5.25%, a level that appears clear to us to be finally having an impact on the #economy.
We think today’s actions represent a “Hawkish skip,” which implies that #policy makers are seeking more #data before potentially hiking rates again in July, or September.
For our part, we think #ChairPowell’s comments at the press conference made it clear that the #FOMC is seeking to balance increasingly restrictive monetary policy with the high degree of uncertainty around the tightening of #CreditConditions…
Today’s #CPI report for May showed another very firm depiction of where #inflation currently resides in the U.S., with #coreCPI (excluding volatile food and energy components) printing at 0.44% month-over-month and 5.33% year-over-year.
Meanwhile, #headlineCPI data printed 0.12% month-over-month and came in just above 4% year-over-year, with declines in #energy components and some food prices being offset by gains in #shelter and used cars and trucks.
Overall, headline #inflation does appear to be moderating at a faster pace and we believe that the trend in inflation (despite the firmness of core measures in today’s report) is broadly heading in the right direction, relative to the @federalreserve’s inflation target.
We’ve seen the pace of #payroll gains decelerate to roughly the monthly trend pace from the last expansion; consensus has been waiting for this moment and expected a 195,000 job gain in May, but the data printed considerably stronger at 339,000 #jobs gained.
The three-month moving average of #nonfarm payrolls sits at 283,000, down from 334,000 jobs at the start of the year, but what the #LaborMarket imbalance needs is more supply and more slack.
The #unemployment rate ticked up to 3.65%, close to its 12-month average level, and average hourly #earnings (a volatile figure) gained 0.33% month-over-month and 4.3% on a year-over-year basis.
Today’s #CPI report continues to depict #inflation that is just too high for most people’s good, especially the @federalreserve’s.
In fact, the report showed that #inflation remains remarkably sticky, which doesn’t correspond to virtually any practical thinker’s timeline of when it might be expected to start to come down further.
These elevated levels of inflation continue to be remarkably high relative to the many months with which the #economy has now operated with persistently higher #InterestRates.