The Fed is Not Enforcing Inflation: Wage Growth is Slowing Down, and Why the US Economy is Facing
The labor market has been monitored by officials at the Federal Reserve to see if raising interest rates is reining in inflation. They’ve been eager to see if the labor market is getting worse and wage growth is going down, but they won’t be alarmed by the economy falling into a recession.
Employers added 261,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. That was much less than the 315,000 in September. The rate went up to 3.8 percent.
While things are slowing down, they are still strong compared to those pre-pandemic normal times. And that’s part of what is keeping inflation elevated.
The Fed has a particular problem with wages. It would like us to shop a little less. There is no way of knowing how much money needs to be cut in order to make a difference.
In the last jobs report, wages were up 5.2% over the last 12 months. That’s historically high (woo!) It doesn’t keep up with inflation which is around 8% a year.
You might see renewed optimism that the Fed’s policies are beginning to have their intended effect if it comes in under 250K.
The Ford F-150 Lightning is slated to be priced at $52,000 a year after the first Fed Senatized Inflationary Collisions
It’s hard to overstate just how delicate the situation is. The world is in a period of economic fragility that Kristalina Georgieva, Managing Director of the International Monetary Fund, described as being “historic” today.
The Federal Reserve chairman used his authority to curb surging inflation, and America’s central bank came under scrutiny for much of the year.
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The entry-level model will be priced at $52,000, a substantial increase from the $40,000 price when the truck went into production this spring.
According to state media, Alexander Lukashenko banned price increases across the economy. Any price increase is forbidden from today. Prohibited! the president is quoted as saying.
Nightcap jobs report: Musk, Peloton, Boston Dynamics, and Phew! (Axios) Disrupting the Cosmic Nightcap
A source familiar with the negotiations told CNN that lawyers for both sides agreed to put off Musk’s deposition in the court fight. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are still talking.
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. According to a letter Axios reviewed, the company suggests it’s worried that customers don’t, like, believe them when they say they’re not building an army that’ll destroy humanity. Thankfully though, they’ve now said they’re not doing that. Oh yeah, Phew!
(CNN Business) Peloton announced yet another round of layoffs — its fourth round of cuts this year — as its new CEO attempts to shore up the company’s bottom line. The company is on a “transformation journey” in which it isoptimizing efficiencies to achieve break-even cash flow. (I don’t know who writes this bloodless business-speak but, man, I would love to make it stop).
Amazon’s only unionized warehouse is shut down: Reinforcement of the economic recovery in two years after the Covid-19 pandemic
(CNN Business) About 50 employees at Amazon’s only unionized warehouse were suspended Tuesday after they went on strike following a fire. Workers at the facility reported that parts of the building smelled of smoke and it was hard to breathe after the fire broke out. A group of workers walked off the job.
Nela Richardson, chief economist at the payroll processing firm, said she believes it’s good news for the Federal Reserve. “You are seeing a bit of a downturn in early-stage demand but still continuation in hiring.”
It’s hard to find a job this time of the year and it’s even harder to let someone go. So people are being a lot more cautious,” said Tim Fiore, who conducts the survey for the Institute for Supply Management.
“It’s not layoffs, primarily,” Fiore said. “It’s [hiring] freezes. When people quit, they’re not replaced as quickly as before. So that’s a clear change from where we’ve been over the last year-and-a-half, two years.”
Manufacturing represents a small slice of the overall workforce, however. The ISM survey found that businesses were not having any slowdown in hiring.
ADP, which handles payroll for more than 25 million workers across the country, reported solid job gains in restaurants, retail and professional services last month.
For the past two years, the labor market has been on a tear, recovering quickly from the massive drop-off of more than 20 million jobs at the onset of the Covid-19 pandemic. The resurgence has come in leaps and bounds: US employers added an average of 562,000 jobs per month last year and 420,000 jobs per month this year.
Richardson said that if people return to the labor market then hiring will likely be loosened and the gains will continue.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. The Fed will be watching to see if the trend continues in September.
It is hard for businesses to keep up with demand for goods and services when there are shortages of both workers and critical supplies. As a result, prices have soared. The Fed thought they would solve those problems on their own. But despite some encouraging signs — like a drop in lumber and used car prices — inflation remains stubbornly high. Prices in August were up 8.3% from a year ago.
Cook and her colleagues on the governing board want interest rates to remain elevated until there’s evidence that prices have peaked.
Cook said that inflation is too high and must come down, in her first public speech as a central bank policymaker.
The Fed is Growing: How Manufacturing, Employment, and the Labor Markets are Dominated by the H1N1 Flu? A Commentary from Gad Levanon
The chief economist at the Burning Glass Institute is Gad Levanon. He was the head of The Conference Board’s Labor Market Institute. His own opinions are included in this commentary.
The United States stands out because of it’s weak economic performance, and it’s suffering from high inflation. We are at a 50-year low in unemployment. We saw in this morning’s report – consumer spending and investment spending continued to grow. We have solid household finances, business finances, banks that are well capitalized,” she said.
Many industries are growing faster than normal because they are still healing from the H1N1 flu. Convention and trade show organizers, car rental companies, nursing homes and child day care services, among others, are all growing fast because they are still well below pre-pandemic employment levels.
“Employment has yet to soften notably, but I think the jobs data is likely to deteriorate meaningfully and quickly,” said finance professor Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary for WisdomTree last week.
Reducing demand for workers or increasing labor supply is one way to reign in the labor market. But it’s hard to engineer a boost in labor supply. It takes legislative action to increase immigration, drive people into the labor force, or invest in workforce training. This is likely to prove elusive in today’s polarized political environment.
In addition to employment totals, one other key metric the Fed focuses on is wage growth, since higher wages can create inflationary pressure by putting more money in the hands of consumers and driving up demand for goods and services.
The Rise and Fall of Schools: How Great Was the Reopening of the Workforce During the Post-Pandemic Era?
Pollak believes the reopening of schools would have been a great moment for a restart for many people who left the labor force during the Pandemic. “We may not see some of the people who left come back.”
The unemployment rate for September fell back to its half-century low of 3.5% from 3.7%, a result of the decline in the number of people looking for work.
The December projections showed a more aggressive monetary policy tightening path, with the median forecast rising to a new interest rate peak of 5%-5.25%, up from 4.5%-4.75% in September. That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the Fed’s economic predictions were last released.
Investors are now pricing in about a 70% chance of just a quarter-point rate increase at the Fed’s next meeting on February 1, according to Fed funds futures on the Chicago Mercantile Exchange.
Dean Baker is the senior economist at the Center for Economic and Policy Research. He said that it would be better for the Fed to see job gains edging down to 200,000 or less.
The pandemic forced restaurants to incorporate online ordering, pick-up and delivery on a greater scale, and customers became more comfortable in using those services, he said. Hotels haven’t bounced back fully, but neither has business travel, he said, adding that the rise of Zoom and competitors like Airbnb could continue to result in more muted demand for hotel stays.
The BLS shows the public sector still has nearly 600,000 jobs, or 2.5%, below levels seen in February 2020.
The recovery remains uneven, and it’s growing more complex as the labor market starts to feel the influence of the Fed’s series of supersized rate hikes, Pollak said.
The Rise and Fall of Jobs in Local States: Laurel Street’s Salar Precession as a Probe of Interest Rate Sensitivities
From August to September, local public education jobs fell by 22,000; day care services employment fell by 2,000 jobs; and truck transportation fell by 11,000 jobs, according to BLS data. The declines are moving in the opposite direction at a critical time.
“Those and a few other sectors have large ripple effects,” Weaver said, noting ongoing supply chain concerns and the ability for people to have reliable education and child care services so that they can return to the workforce. “That can certainly impact [parents’] long-term and future economic and work prospects.”
“We’re not sensing that a recession is imminent,” said Dionne Nelson, Laurel Street’s chief executive officer and founder. We’re still busy. We are still looking for people. Our markets are still very active.”
Investors winced on Friday, as fresh data about the health of the labor market paved the way for the Federal Reserve to deliver another bumper increase to interest rates next month, raising costs for companies and weighing on stock prices.
The S&P 500 lost 3 percent on Friday due to interest rate sensitive sectors. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
The Strength of the Labor Market Despite Inflation: CNN’s Minkowski Yellen Reveals Strong Recovery from a Slowdown in the Fourth Quarter
The resilience of the labor market makes it a bad sign for investors that the Fed will raise interest rates more than it already has. Higher rates and higher costs affect stock prices.
Job growth remained stubbornly robust in October despite higher interest rates, defying policymakers’ efforts to dampen the labor market and curb the fastest inflation in generations.
Carl Tannenbaum, chief economist at Northern Trust, stated that the job market is still one of the strongest he has ever seen.
“Long Covid is pretty real, and there’s a sizable share of the population who continue to suffer health effects related to Covid that are preventing them from being able to work,” said John Leer, chief economist with Morning Consult. There are still ongoing child care challenges that include a lot of people who retired early and limited immigration that is not pre-pandemic.
It has been difficult to get there. As vaccines became widely available and businesses reopened last year, employers suddenly had more jobs to fill than applicants available to fill them. It was good news for workers who were able to jump from job to job in order to get better pay. It helped feed inflation by raising prices to cover labor costs.
Yellen’s optimism comes amid growing concern from economists and finance officials that a recession is likely at some point in the next year, but was based in part on elements of the latest data that showed signs a necessary slowdown in key areas of the economy leaves open a pathway to a “soft landing” as the Federal Reserve prepares to continue its rapid pace of rate increases.
During a one-on-one interview in Ohio that aired on CNN’s “Erin Burnett OutFront,” Yellen said the third quarter GDP data released Thursday underscored the strength of the US economy as policy makers urgently move to cool off pervasive and soaring inflation that has had a sharp effect on American views of the economy – and endangered the Democratic majorities on Capitol Hill less than two weeks from the midterm elections.
The broadest measure of economic activity rose by an average of 2.5% in the third quarter according to initial estimates from the Bureau of Economic Analysis. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.
Josephine Yellen on the State of the Art, the President’s 2008 White House Addressing Covid-19 and the Progress Made During the First Three Months
But Yellen’s view also underscored the complex balancing act President Joe Biden and his top economic officials have attempted over the course of this year, as they seek to highlight a rapid economic recovery and major legislative victories while also pledging to tackle soaring prices.
It is a reality that has made it hard for the administration to take advantage of what they see as a strong record. Biden told reporters that the economy was strong when asked about it last week.
The efforts to pull the US economy out of crisis haven’t received credit the officials believe is merited.
Many families American families could have faced difficulties due to the several problems we could have had. “These are problems we don’t have, because of what the Biden administration has done. One may not get credit for problems that don’t exist.
As part of the administration’s push to highlight the major legislative wins, she traveled to Cleveland, where she spoke about the importance of private sector investment that has resulted in manufacturing around the country.
It’s a critical piece of an economic strategy designed to address many of the vulnerabilities and failings laid bare as Covid-19 ravaged the world, with significant federal investments in infrastructure and shoring up – or creating from scratch – key pieces of critical supply chains.
The Intel plant opened a few hours drive away from Columbus, and was listed as one of several major private sector investments by the head of the Federal Reserve.
“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many roads and bridges are going to be improved in many communities. We’re seeing money flow into research and development, which is really an important source of long term strength to the American economy. America will become a more competitive economy as its strength increases, she said.
The Great Resignation and the Job Openings of the US: What Do We Really Want to See Next to the Wall Wall? When Did President Yellen Tell the White House about the Debt Ceiling?
Yellen also addressed the battle lines that have been drawn this week over raising the debt ceiling, a now-perpetual Washington crisis of its own making that House Republicans have once again pledged to utilize for leverage should they take the majority.
The President and I agree that America should not be held hostage by members of Congress who want to compromise the credit rating of the United States or threatenDEFAULT on US Treasuries, which are the bedrock of global financial markets.
As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. The reports that she told the White House that she wanted to stay in was an accurate read, according to Yellen.
The program that I talked about was exciting to me. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. And I want to be part of that.”
There is only one reason Powell pays attention to job openings. The measure of demand is because employers don’t try to hire when people aren’t buying their products. They can be seen as having a connection to the link between wage growth and inflation because when lots of companies are hiring they have to pay more to compete for workers.
You probably read about the “great resignation,” the surge in people leaving their jobs as the economy re-emerged from Covid-induced lockdowns. The phenomenon was real, but the narrative often missed a crucial element: Most weren’t quitting to sit on the couch. They were taking other, usually better-paying, jobs.
The JOLTS survey tracks job vacancies, quits and layoffs. The report surprised economists who had expected the number of job vacancies in the US to fall because of the federal government’s measures to slow business growth. But instead of dropping to 10 million, it surged to 10.7 million.
In normal times, that’s the kind of news worth celebrating. The economy is overheating in the up-is-down economics of 2022, which is cause for concern. That’s partly why the Fed announced its fourth-straight three-quarter-point hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.
While Fed Chair Jerome Powell said earlier this month that the central bank still has “some ways to go” in its battle to tame inflation, sentiment is growing that the Fed may pivot and ease its current regime of historically high rate hikes to fight growing prices.
While investors, business leaders and some economic models continue to warn a recession is imminent, Wall Street’s most powerful investment bank remains cautiously optimistic.
Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
The 2020 Real Estate Boom: Millennials, Boomers and the American Dream in the Age of Wall Street, Boomer Boomer Economy, and Boomer Wall Street
It is bad news for the younger generation who want to buy their first home. The typical age of a first-time homebuyer is now a record 36 years old, up from 33 last year.
While the stock surge didn’t hurt, it did allow Baby Boomer parents with large investment portfolios to give some of those gains to their kids.
The 2020 housing boom should be lucky for those who close on a home in the crush of competition, because of the rock- bottom mortgage rates.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it was high as 50%.
Jessica Lautz, NAR’s vice president of demographic and behavioral insights said, “They have to save while paying more for rent as well as student debt and other expenses.” This year was facing increases in home prices and mortgage rates.
In addition to mortgage rates going up, home prices also went up, with the median growing to $413,800 in June. Imagine your starter home at 400 grand.
Housing is broken. I don’t believe I have a silver bullet, but it’s clear that inventory constraints and outdated rules are part of the problem.
Housing supply has expanded through single-family subdivisions at the urban fringe rather than rebuilding within existing neighborhoods. That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
Now is a great time for federal and local governments to think about how they frame the American Dream as affordability reaches crisis levels. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. Schuetz says that the Boomers are reluctant to change the system that got them to where they are, due to the upper-middle class still being in power.
The Bank of England and Central Bank hike the next-to-next-to leading 1%: The economy is hot but hasn’t cooled down
Hot on the heels of the Fed’s fourth-straight 0.75 percentage point rate hike, the Bank of England followed suit Thursday, raising its own key interest rate by the same amount — its biggest hike in 33 years. The European Central Bank did the same thing last week.
TheBasis points are how central bankers talk about rate moves. One basis point = one-tenth of a percentage point.)
Daniel Zhao, an economist at the careers site Glassdoor, said that the economy has gone from being white hot to red hot. “It’s still a very hot labor market but it has cooled down.”
The economy report will likely be used to amplify the parties closing pitches when the elections are over.
“Today’s stronger than expected report illustrates the difficult task that still lies ahead for the Fed wrestling a resilient labor market and sticky inflation,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley Global Investment Office. The number is disappointing for investors hoping for a dovish Fed sooner rather than later but it was the lowest reading in nearly two years.
The unemployment rate had been predicted to rise to 3.6%. The unemployment rate is calculated using a separate survey of households rather than the employer survey used to count workers on the job.
Several economists said Friday they think the Fed could slow the pace of rate hikes, rather than approve three-fourths of a point increases in recent meetings.
The Inflationary Transition: The Biden Effect and the Prospect for Growth in the Next Five-Year Future of the Universe, Goldman Sachs
“No matter how many jobs that I can get in front of this camera and tell you how we’ve added and how great they are, people are still feeling the struggle at the kitchen table,” he said. The Biden administration is working to address rising prices with its Inflation Reduction Act, he added.
“We still see a very plausible non-recessionary four-step path from the high-inflation economy of the present to a low-inflation economy of the future,” Goldman Sachs chief economist Jan Hatzius wrote in a report.
Goldman said the transition to more sustainable economic growth has already occurred, and it looks durable. The bank expects a small growth in the domestic product.
Goldman Sachs concedes that there has been “much less progress” on the price side. Inflation metrics haven’t really gotten any better but they have stopped getting worse.
The Day After Inflation: The Predictions of Wall Street Investors and the Implications for the Fed, the Small-Scale Economy, and the Stock Market
A version of the story first appeared in CNN Business. Before the Bell newsletter. Not a subscriber? You can sign up here. You can get an audio version of the newsletter by clicking on the link.
Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. The Federal Reserve may be less aggressive with rate hikes.
The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. The inflation rate rose in October from a year ago.
Even if investors get their hopes up about a central bank pivot they will be crushed by negative data or messages from the Fed.
“Like an athlete running in a marathon, the Federal Reserve’s attempt to bring inflation down toward its 2% target requires some patience, but importantly, moving forward matters even if it’s early on in the race,” said Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income.
“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.
Bitcoin Winter: The Case for a Clear Future in a Crypto-Domain Market with Rate-Facing Walls, Unemployment, and the Fed’s Unemployment
This isn’t the first time that there has been a so-called crypto winter. Bitcoin prices have been notoriously volatile over the past few years, but they have still done better than many major stock market indexes.
Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
A thaw in the digital coin. The Covid-era was a time when near zero interest rates and large-scale investors were the main drivers of the coin’s rise. It reached a record high of nearly $70,000 in November.
Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. At the same time, the economy began to sour and those new investors who still viewed bitcoin as a risky asset exited in droves.
Even though they went straight up and down they have still gained a lot from mid-2020. Digital assets are still beating tech stocks over the longer time horizon, according to an interview with the chief investment officer at Arca.
The bottom line: With mortgage rates up four percentage points from a year ago, buyers’ purchasing power has plummeted. That has pushed many buyers out of the market, which means that those who are left need to look at a lower price point, or make compromises on location, size, or condition in order to find a house that is affordable.
They are expecting just a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
In a goldilocks situation where the unemployment falls to convince the Fed that the rate hikes have stopped the labor market from growing, the economy would still be doing well. That’s a very narrow path to land on.
Inflationary Predictions for the U.S. Retail Price Rises Through November, and Consumer Spending Perturbations Rises Over the Past 12 Months
But it may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was higher than the expected rate but there was a deceleration from the 8% increase through October.
The head of fixed income research for the center said inflation probably peaked but wouldn’t come down quickly.
The fed funds rate is expected to be increased in early 2023 once it is obvious that the job market is cooling and wage growth and services inflation are slowing.
Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar
(LEN) and Trip.com (TCOM)
Truist Advisory Services’ co-chief investment officer said that the pivot or pause is not a cure-all for the market. “Rate cuts may be too late. Recession risks are still relatively high.”
Economists are actually forecasting a small dip of 0.1% in retail sales from October. But it’s important to put that number in context. Retail sales grew over the course of the past year.
So it’s possible consumers were simply getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.
“Everybody has been talking about inflation this year. In the future, disinflation will be more of a priority, said Cosserat.
Wall Street and Wall Street: How Stocks Fail in a High-Reemployment Recession and Its Implications for Investors
What does that mean for investors? Consumers should be searching for companies that can maintain their profit margins and still have pricing power. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal (LRLCF).
Friday’s earnings are from the Eurozone, UK retail sales, and Darden Restaurants.
The closely watched November jobs report showed a resilient labor market which caused the stocks to plunge. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.
What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.
It’s possible that he’s correct — but some economists still think there’s hope that if employment softens in the first half of next year a Fed pivot could come quickly and with it, recovery.
Powell expressed optimism on Wednesday that a soft landing was still possible and that the labor market was tight enough to withstand an increase in unemployment without snowballing into a recession. Investors, meanwhile, will be watching jobs numbers very closely.
Super Saturday, December 17: Bankman-Fried’s House of Cards on a Foundation of Deception and the Most Valuable Banks of the Universe
It is not known when Bankman-Fried will appear in court. He would likely return to the US quickly if he did not agree to his extradree. Once in the states, he will appear before a US judge for a bail hearing.
Federal prosecutors from the Southern District of New York charged Bankman- Fried with eight counts of fraud. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”
Super Saturday is traditionally the busiest shopping day of the pre- Christmas period. With Christmas Day falling on a Sunday, and Christmas Eve falling on the preceding Saturday, Super Saturday this year is on Dec. 17th. More than 158 million consumers are estimated to shop that day, according to the National Retail Federation.
Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than a week to go until Christmas Day and shipping deadlines approaching, people have a lot more buying to do.
The Rise of Inflation in the United States, as Retailers Seeked to Optimize Their Stockpiles During the Holiday Season
Retailers spend a good deal of money sitting on an oversupply of merchandise. Retailers who store their products in their own warehouses and distribution centers have a limited amount of space to work with, with some wiggle room to allow for excess inventory. But costs add up if more space is needed for a protracted glut that they can’t quickly clear out.
Also, unsold products lose value over time. If the trend has passed, savvy shoppers will not purchase last year’s style. Stores are then forced to heavily discount, which impacts profitability.
Stores this year were offering discounts of 50% to 60% off, and free shipping on online orders for the final full weekend before Christmas.
The professor of consumer behavior at Widener University in Chester, Pennsylvania said he had never seen such a drastic discount during the holiday season.
He said that retailers are very nervous. The time is running out and they have to maximize every chance they can to get consumers to make purchases.
The recent months have seen a decrease in the price of goods as supply chain problems have been solved and consumers are spending more in leisure andhospitality.
Core PCE, which excludes volatile food and energy, was up 4.7% annually and matched expectations of economists according to Refinitiv.
The annual increases for both PCE inflation indexes hit their lowest levels since October 2021 and follows continued declines in other inflation gauges, such as the Consumer Price Index and Producer Price Index.
Spending increased in November but at a slower pace than in previous months, according to the Friday report. Spending was up in the month of November as against the previous month. In October, personal income was up by 0.7%.
The November PCE report, the last major inflation gauge released in 2022, provided a snapshot of an economy in transition. Tasked with reining in the highest inflation since the early 1980s, the Fed has undertaken a series of blockbuster interest rate hikes to squelch demand.
Disposable income fell from the spring of 2021 through the summer of 2022 as inflation outran wage growth and pandemic savings dried up. Consumers are borrowing more because American bank accounts are not as robust. Credit card balances increased by 15% in the third quarter. That is the largest annual jump since the New York Fed started tracking data.
Inflation in the services sector has not been abatering as quickly as it might have been. Friday’s PCE report showed the services index posted a monthly increase of 0.4% – unchanged from October’s rate – and a year-over-year increase of more than 11%, Faucher noted.
While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.
The December Production of Manufactures: Preliminary Measurements of Consumer Sentiment and the Conference Board’s Consumer Confidence Index
A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.
New orders for aircraft and parts drove the decline according to the report. New orders increase by just under 2%.
Diane Swonk, chief economist for KPMG, said after the report’s release that core durable goods orders slowed but did not contract. Manufacturing activity has begun to contract and the prelim reading suggests that will continue through December. The winter is expected to hit the manufacturing sector hard.
The Surveys of Consumers director said that consumers welcomed the easing of inflation. “While sentiment appears to have turned a corner from its all-time low from June, consumers have reserved judgment about whether the trends will continue.”
The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.
Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.
The Central Bank of the United States: Economic Data, Results, and Perspectives for the Year 203 Exposed to a Benchmark Report
However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.
Employers are hesitant to lay people off, and other areas of the economy are also showing strength, which means that people who are unemployed are able to get rehired quickly.
The soft landing is a result of how well the consumer has held up, and not pulling the rug out from under the consumer.
The central bank’s policymaking arm has eight regular meetings per year. A 12-member group looks at economic data, assesses financial condition and evaluates monetary policy actions after the conclusion of their meeting on the second day, along with a press conference led by Chair Powell.
Some meetings are scheduled for the year 203. The meeting with a Summary of Economic Projections includes a chart known as the “dot plot” which shows where the interest rates will be in the future.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. The three major US markets have had their worst years in recent years.
The Giant of the Stock Market: The News from Wall Street, The Wall Street Wall, and the First-Time Jobless Claims Numbers
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. That’s still low historically and almost exactly where jobless claims were a year ago, long before recession fears emerged.
“This is one reason to the be optimistic the economy could skirt a recession,” Moody’s Analytics chief economist Mark Zandi told CNN on Thursday. It is unlikely consumers will stop spending without mass layoffs.
After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. Since hitting a 19-month low last month, the average for regular gasoline has crept higher but remained at $3.10 a gallon.
The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.
Traders are betting on a further deceleration in jobs growth because that could lead to a reduction in the size of interest rate hikes by the Federal Reserve.
Still, traders have been glued to economic reports even more than usual as of late, and stocks have been incredibly choppy based on what the latest figures indicate about inflation.
A weaker than expected report on the health of the manufacturing sector coupled with more signs of strength in the jobs market led to more market volatility.
That’s why investors will also be poring over the weekly jobless claims numbers that come out Thursday morning as well as a report from payroll processing company ADP
(ADP) about the private sector job market. Further strength could set off more alarm bells about inflation and Fed rate hikes.
There will be scrutiny of wage growth. An increase in compensation can lead to inflation. Consumers can afford to pay the higher prices that companies charge for their products and services if they have more disposable income.
“The persistent mismatch between labor supply and demand continues to put upward pressure on wages,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a report.
The number of jobs added is likely to be more important than the number of workers employed in the report. Wall Street could do the same thing.
Overall, the jobs market is still in good shape. You wouldn’t know it from what’s happening in Silicon Valley. The giant is a component of the stock market. On Wednesday, it was announced that 10% of its workforce was going to be laid off.
The hope was that businesses and consumers would continue to spend money on tech products and services, a notion that was valid as the economy rebounded from a brief recession in 2020.
Tech companies realize that inflation and rate hikes may have not been factored into their budgeting plans, as recession alarm bells are sounding again.
In a recent note to employees, the chair and co-CEO ofSalesforce said that he hired too many people leading into the economic downturn.
“Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year,” Amazon CEO Andy Jassy said in a memo shared with employees.
The Global Economy is Getting Better at Inflation: The New Year’s Salad Days of the New Year in Europe, with an Implication for the Labor Market
The global economy is still not out of danger. Many, including the head of the International Monetary Fund, are still concerned about a looming downturn that could hit China and emerging markets particularly hard.
According to Anna Cooban of CNN, investors in Europe appear to be growing more hopeful that inflation in France and Germany is slowing down. A drop in energy prices is leading the pullback.
Food prices surged in December according to the British Retail Consortium. According to the data analytic firm, grocery sales hit a record in the four weeks ending on December 25 even though the number of items consumers bought fell 1%.
We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. There’s a certain clarity that comes during this time in January.
Jobs has been the word of the week as investors eye a slew of data highlighting a strong labor market that is confoundingly resistant to the Fed’s attempts to cool the economy.
The US labor market is historically tight, with the unemployment rate, as of November, at just 3.7% and about 1.7 available jobs for every job seeker. The second-best year on record for job growth will be in 2022, if job numbers come in as expected.
In an interview with the Financial Times this week, Gita Gopinath, second in command at the International Monetary Fund, urged the Fed to continue with rate increases this year, citing the labor market’s resilience.
Will wages go up or down this year? Analysts at Goldman say that they will. They believe that unemployment will grow and wage growth will slow from above 5% in 2022 to about 4% by the end of this year.
Premarket Stocks Trading: It’s Almost Single-handedly Storing Off Recession, Not Just an Inflationary Year
Bank of America CEO Brian Moynihan told CNN around the holidays that the continued strength of the US consumer is nearly single-handedly staving off recession.
US retail sales fell 0.6% in November, the weakest performance in nearly a year. Analysts say weak sales will continue and retailers earnings will suffer if they do.
This is the most important question for investors, as it can help determine what happens to markets this year, and it can also help determine if the economy will fall into recession.
In the minutes from the December Fed meeting, central bank officials spelled it out for interested parties: No policy makers anticipated that rate cuts would be appropriate in 2023. The minutes warned that “an unwarranted easing in financial conditions … would complicate the Committee’s effort to restore price stability.”
They stressed that inflation was still high and that more evidence of progress was required, even though they welcomed softer inflation reports.
The 30-year mortgage averaged 6.48% for the week ending January 5, a jump from the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.22%.
The current market is driving away would be buyers partly because Americans don’t want to sell their homes at ultra-low mortgage rates.
The Beacon Store isn’t Going to Bankruptcy: Implications of the Decline of the Home-Goods Sector
There is “substantial doubt about the company’s ability to continue” because of its worsening financial situation, the home goods chain said in a regulatory filing.
“Bed Bath & Beyond is too far gone to be saved in its present form,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients Thursday. “All of this points to bankruptcy as being the most likely outcome.”
The Fed has been aggressive in its rate hikes, which have made a dent in inflation and resulted in slowed economic activity without stark rises in unemployment, but Powell warned Wednesday that the full effects have yet to come.
“I would say it is a good thing the disinflation we have seen so far has not come at the expense of a weaker labor market,” Powell said in a news conference following the Fed’s first monetary policymaking meeting of the year. “But I would also say the inflationary process you see under way is really at an early stage.”
That could mean we are headed for a welcome, healthy rebalancing of the labor market — or a more worrying stall, said Julia Pollak, senior economist with ZipRecruiter.
Pollak and other economists will scrutinize other areas of the jobs report including payroll gains, unemployment and average hourly earnings when it is released on Friday.
That’s down from the January 2021 high of 35 hours when the average workweek ballooned as workers were scarce and other employees were forced to pick up the slack and the extra shifts, Pollak said.
“The recent decline in temp staffing is mostly the result of a healthy recovery in full-time, in-house hiring,” Pollak said. “But if it falls much below 3 million, I think that would be a warning sign as well.”
Sarah House is a senior economist at Wells Fargo.
“The fact that we see that paring down suggests that the demand backdrop is starting to soften, and maybe they just don’t see the reason to hire and expand as much as they had previously,” House said.
Based on Wednesday’s labor turnover data, that gap grew wider in December: There were over 11 million job openings and roughly 1.9 jobs for every person that was out of work.
What’s happening in the US economy, and what is going on in the next few years? A survey of the January jobs report from a long-term perspective
Beyond that and the ongoing demographic shifts of Baby Boomers aging out of the workforce, there’s also possibly some “information asymmetry” that’s occurring, he said.
“There are people outside of the labor market who aren’t working, and they just simply don’t know how needed they are right now,” he said. “And I think that’s a function of being a little removed. The world has changed so much over the last few years that it won’t be easy to show people you have the skills they need.
“We didn’t expect it to be this strong,” Powell said of the January jobs report, which showed the US economy added 517,000 jobs. “It kind of shows you why we think that this will be a process that takes a significant period of time.”
Powell expects housing to decline in the middle of this year, but he is keeping a close eye on what happens to core services.
The major US stock indexes rallied during Powell’s discussion but then fell in early afternoon trading, with the Dow down by around 200 points or 0.6%, the S&P lower by 0.3% and the tech-heavy Nasdaq down by 0.2%.
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.