By the Missouri Department of Economic Development
DED Stakeholders,
August’s economic data continues to provide us with mixed signals, however, the Fed may have given us an indicator as to which signals are more important.
Last month we covered the initial GDP release for the second quarter and the U.S. employment data for July. As a recap, GDP rebounded strongly (at an annualized 3.0% rate) after an import-induced decline in Q1. Revised GDP numbers released last week show that the second quarter’s growth was even better than originally announced (3.3%). However, U.S. employment told another story. Revised data shows that businesses have pulled back considerably on hiring with May, June, and July combining for just 106,000 jobs. Prior to May, the average growth per month was over 122,000.
July’s headline inflation number held steady at 2.7%, while core inflation (which removes food and energy prices due to their volatility) rose to 3.1%. This gets us back to those mixed signals. On one hand, there is concern (based largely on the employment data) that the economy might be slowing down. At the same time, inflation remains well above the Fed’s target rate of 2% and has risen in recent months. We often associate rising inflation with an economy that is running “too hot,” so seeing it rise as the economy is showing signs of slowing puts the Fed in a difficult spot. Should they hold interest rates at their elevated level to keep inflation in check (at the risk of slowing the economy further)? Or cut rates to boost the economy while risking higher inflation? Fed Chair Jerome Powell gave us a good indicator that the Fed was more concerned about the slowing economy and was leaning towards rate cuts.
Turning to Missouri, July’s employment numbers were good, adding 17,100, however, it might be best to wait until August’s data release (which would include any revisions to that 17,100 figure) before we celebrate. Much of the growth in July was in the local government sector, which includes public education. Understandably, these numbers can be difficult to assess during the summer as districts start hiring for the new school year.
Looking at a longer-term trend, Missouri is posting solid employment growth year-over-year with 49,300 jobs added for the year ending in July, which ranks 10th nationally.
September promises to be a telling month. All eyes will be on Friday’s U.S. employment release for August to see if the recent slowdown in hiring was a blip or the start of a new trend. On the 11th, we will have the latest data on inflation, which will undoubtedly factor in when the Federal Open Market Committee considers interest rate cuts when they meet in the middle of the month. Again, Chair Powell has signaled a cut.
All said, uncertainty continues to cloud the economy. However, it seems at least a bit clearer now that slowing growth is the primary concern.
Sincerely,
Jeff Pinkerton
Director of Economic Research
No comments:
Post a Comment