Economic Outlook - September 2023
- Federal Reserve policymakers met in Jackson Hole at the Kansas City Federal Reserve’s annual conference. Chairman Jerome Powell reiterated the Fed’s commitment to reducing inflation. During his 14 minute speech, Powell stressed that the Fed’s top priority is taming inflation. Though inflation has moved down from its peak, it remains high and may require future rate increases. Powell is committed to a long-term inflation target of 2%. We expect an additional 25bps rate hike in the fourth quarter, and then a pause as inflation subsides.
- August nonfarm payrolls increased by 187,000, showing a steady pace of job growth. Though payrolls increased, the gains are well below the 271,000 average over the last 12 months. The unemployment rate jumped to 3.8% from 3.5%, the highest level since February 2022 as workers re-enter the workforce. Average hourly earnings rose 0.2%, which shows a moderating pace of wage growth. The jobs report could be a sign that the labor market is softening, which should help ease inflation.
- The ISM Manufacturing Index registered at 47.6%, the 10th consecutive month of contraction but 1.2 percentage points higher than July. A number above 50 indicates expansion. The 10 month decline in the index is the longest decline since the 2007-2009 recession. The slowdown in manufacturing is due to a lower demand for manufactured goods, which had boomed during the pandemic. Consumers have shifted their spending towards services, which includes travel and restaurants.
- Core PCE, the Federal Reserve’s preferred inflation metric rose 0.2% in July on a monthly basis and 4.2% on an annualized rate. Consumer spending increased 0.8% while the savings rate fell to 3.5% from 4.3%, the lowest level since October 2022. Spending on dining, concerts, and recreation equipment drove spending. Personal incomes grew only 0.2%, the smallest gain since January 2022, which may indicate the labor market is slowing, which should help to tame inflation. As inflation moderates, the economy continues to grow at a healthy pace.
Source: Bloomberg, FactSet, U.S. Government, Dow Jones, Conference Board, Institute for Supply Management, Federal Reserve
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