SPXS - An Economic Puzzle
2023-08-14 21:56:00 ET
Summary
- Headline CPI peaked in June 2022 at 9% and steadily declined through June 2023 to 3%.
- Monthly net new jobs data is quite volatile. With the pandemic rebound largely over, jobs growth is slowing, although still quite robust by pre-pandemic standards.
- The up and down volatility in the pattern of monthly data may increase over the rest of the year.
By Blu Putnam
U.S. price and jobs data releases are likely to create both confusion and debate over the course of the economy and inflation over the next several months. Here are four factors to consider.
First, there are no signs of a U.S. recession in the jobs data we have seen in 2023. The emergence of a no-recession consensus has worked, at least so far, to push long-term Treasury bond yields higher.
Second, while the U.S. labor market is trending a little lower on monthly job creation, jobs growth is still robust when compared to pre-pandemic patterns. At the same time, the unemployment rate is sticky, below 4%. Part of the challenge of analyzing the unemployment rate is that while job creation may be slowing a bit, the labor force, which is the denominator of this ratio, is not growing much at all. That means that even small increases in monthly jobs creation can keep the unemployment rate very low.
Third, the headline consumer inflation rate has been moving steadily downward from its peak of 9% in June 2022 to 3% in June 2023. Progress from here is likely to be exceedingly bumpy. The biggest challenge to the year-over-year percent change was that gasoline prices at the pump started to fall in July 2022; they were rising in July 2023. That is, falling energy prices over the past 12 months were critical to the declines we witnessed in the headline CPI, and that trend in energy prices is now moving higher.
Finally, the up and down volatility in the pattern of monthly data may increase over the rest of the year. The challenge here relates to seasonal adjustment. The pandemic disrupted pre-pandemic patterns in seasonal factors. Economists typically prefer to focus on seasonally adjusted data, but we would suggest caution is advised, as many seasonal factors have shifted, potentially creating more volatility in monthly data.
The bottom line is that with the current data showing no signs that the U.S. economy is headed into a recession, and with headline inflation possibly having seen its best number of the year back in June, market participants are revising expectations for everything from GDP to inflation, to bond yields, in the context of a period of volatile data releases.
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An Economic Puzzle