The Economy this Week
The economic news this week has been quite mixed as investors focus on what the Federal Reserve will do at their next meeting in August. The consensus opinion remains tilted towards a rate hike of 0.25% with 60% of those surveyed still expecting the Fed to focus on fighting inflation.
The Labor Department released the non-farm payrolls report today and the number of jobs created in June was well below the forecast of 175,000, coming in at only 121,000. There were some indications that the number could be substantially higher due to ADP survey that was released on Wednesday which forecast 350,000 new jobs in June.
The US economy appears to be slowing but the non-farm report also showed an increase in average hourly wages of 0.5%. This is 3.9% higher on a year over year basis the largest increase since 2001. The increase in earnings could be an indication of increased inflation pressure or it could be that businesses are seeing the economy slowing and have chosen to increase the number of hours worked with the same workforce.
The pace of consumer spending is falling as indicated by the recent chain store sales data which was much lower than expected falling 0.7% for the week ended June 30th. Chain store sales for the month of June were down 0.4%, this is the second month in a row of declining sales. The reason cited is higher gasoline prices which have been consistently impacting the consumer’s ability to buy. Higher energy prices are only part of the story as home prices have been falling as well and this is dramatically reducing the consumer’s ability to borrow to consume.
The Federal Reserve will receive a number of other reports on the economy before their August meeting and if the data continues to show a weakening economy they may have to rethink their stance on inflation in the short term rather than move rates too high at a time of a decrease in demand. At this point I believe the Fed will err on the side of caution and leave rates unchanged in August due to the consistent reports of economic activity declining.
The Labor Department released the non-farm payrolls report today and the number of jobs created in June was well below the forecast of 175,000, coming in at only 121,000. There were some indications that the number could be substantially higher due to ADP survey that was released on Wednesday which forecast 350,000 new jobs in June.
The US economy appears to be slowing but the non-farm report also showed an increase in average hourly wages of 0.5%. This is 3.9% higher on a year over year basis the largest increase since 2001. The increase in earnings could be an indication of increased inflation pressure or it could be that businesses are seeing the economy slowing and have chosen to increase the number of hours worked with the same workforce.
The pace of consumer spending is falling as indicated by the recent chain store sales data which was much lower than expected falling 0.7% for the week ended June 30th. Chain store sales for the month of June were down 0.4%, this is the second month in a row of declining sales. The reason cited is higher gasoline prices which have been consistently impacting the consumer’s ability to buy. Higher energy prices are only part of the story as home prices have been falling as well and this is dramatically reducing the consumer’s ability to borrow to consume.
The Federal Reserve will receive a number of other reports on the economy before their August meeting and if the data continues to show a weakening economy they may have to rethink their stance on inflation in the short term rather than move rates too high at a time of a decrease in demand. At this point I believe the Fed will err on the side of caution and leave rates unchanged in August due to the consistent reports of economic activity declining.
posted by Grant | 7:31 AM
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