Although an inverted yield curve and consecutive quarterly declines in GDP might fit the “old” definition of a recession, the economic data published in August didn’t quite corroborate that view. Continued low unemployment, robust job openings and PMI readings around 50 would seem to suggest that while the rate of growth might be slowing, the US economy continues to expand as we recover from 2 years of Covid-related disruptions. Taking into account the latest hawkish rhetoric emanating from Fed Chair Powell at the widely anticipated Jackson Hole confab, we should be expecting progressively higher short-term interest rates as the Fed doubles down on its commitment to return inflation to the 2% level. This would suggest that economic growth measures going forward should be lower/slower, while unemployment should tick-up and job openings fall, possibly dramatically.
As things stand today, the U.S. Unemployment Rate for July was 3.5%, while the Underemployment Rate stood at just 6.7%. Average Hourly Earnings jumped +0.5% MoM, and now stand at a heady +5.2% above the level one year ago. The Labor Force Participation Rate, which once hovered around 66% back in the 2000’s, registered 62.1% in July, above the pandemic low of 60.2%, but still below the pre-pandemic level of 63.4%. The labor market in the U.S. remains one of the biggest conundrums facing economists, with the Baby-Boom generation retiring and the more robust Millennial generation comprising the bulk of the work force. The data remains noisy as employment trends change, however the latest JOLTS Job Openings survey showed more than 11 million positions available.
As suggested above, PMI surveys show a US economy right at the edge of stall-speed, however still expanding. The S&P Global US Manufacturing PMI preliminary reading for August came in at 51.3, while the Services PMI reading was just 44.1. The MNI Chicago PMI reading for August beat expectations at 52.2. Industrial Production in July ticked up +0.6% MoM while Capacity Utilization increased slightly to 80.3%. Durable Goods Orders for July were unchanged following June’s +2.0% increase.
The Kansas City Fed’s annual August symposium, held in iconic Teton National Park, was perhaps the most anticipated event of August. Although clocking in at just 10 minutes in length, Chair Powell’s speech messaged in no uncertain terms that the Fed would continue to raise interest rates until inflation was brought under control – a message markets weren’t quite anticipating. Going forward, “bad news” could be viewed as “good news” should it lead to an earlier cessation of rate hikes. The plot thickens.
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