Weekly Economic Trends and Indicators
Last week was a busy week for national economic data with updated numbers for inflation, job openings, and employment. In addition, Federal Reserve Board Chair Jerome Powell delivered a much awaited speech to the annual economic policy symposium at Jackson Hole, Wyoming. With all this news, the financial markets had much to digest. As has been the case for several months, the most important questions are how the news will affect monetary policy (interest rates) and whether a recession is more or less likely.
Fed Chair Powell did not make participants wait to hear his opinion on the stance of monetary policy as he delivered the punchline right away in the first paragraph of his speech, “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” As Fed speeches go, that sentence is more direct than we frequently hear. Powell went on to describe how inflation has fallen sharply though much work still remains. He then discussed the risk to the labor market from further rate hikes. Powell remarked, “Beyond these traditional sources of policy uncertainty, the supply and demand dislocations unique to this cycle raise further complications through their effects on inflation and labor market dynamics. For example, so far, job openings have declined substantially without increasing unemployment—a highly welcome but historically unusual result that appears to reflect large excess demand for labor.”
This story matches what we are seeing locally in the Quad Cities. As we saw last week, labor market conditions in Scott County in the first quarter of 2023 have exhibited rising wages, below trend labor force participation, and a slowdown in hiring. This is consistent with demand outpacing supply.
The Job Openings and Labor Turnover Summary (JOLTS) released on August 29 showed job openings declining by 338,000 in July with little changes in separations and layoffs. This would suggest the labor market imbalance which was much larger in the first part of the year is in the process of normalizing. This should help with inflation, and as long as the process is gradual, it need not portend a recession.
Rounding out the news, the PCE deflator (a more comprehensive measure of inflation compared to the CPI) increased by 0.2% in July—the same rate of increase as in June. The rate of PCE inflation over the last year stands at 3.3% (overall) and 4.2% (less food and energy)—still uncomfortably high, but trending down since earlier in the year.
Finally, the economy added 187,000 jobs in August, up from 157,000 in July, but about half of the monthly job growth a year ago. Labor force participation was up 0.2% to 62.8%, and the unemployment rate rose slightly from 3.5% to 3.8%.
The financial markets applauded the news of the week as it gave support to the “soft landing” scenario. Most expect a pause in rate hikes in September, but Powell’s words lead many to believe that another hike in November is still on the table.
Next week: Update on key industries in the Quad Cities
