Friday’s employment report suggests the US economy may be slowing down faster than most investors think
We all knew it was coming…and in Jackson Hole, Federal Reserve Chairman Jerome Powell said it will come next month. He said, “the time has come,” and the futures markets have priced in either a 25 or 50 basis point rate cut at the meeting on September 18.
Unfortunately, when it comes to the government, what’s old is sometimes new again.
Pretty much every month there’s one week that has the most important economic reports. For the month of August that’s this week. The reports this week include consumer price inflation, producer prices, retail sales, industrial production, housing starts, and unemployment claims.
The growth of bureaucracy around the world has led to a proliferation of rules. This creates multitudes of problems, one of which is that the state has made understanding what it is doing impenetrable, boring, nuanced, and technical.
As Milton Friedman taught us many decades ago, monetary policy works with long and variable lags. Recent economic reports suggest that the long and variable lags on the tightening of monetary policy in 2022-23 are starting to come to an end.
Could this be the last Fed meeting before rate cuts begin? With inflation moderating and job growth weakening, the Fed prepared markets for a more eventful meeting in September while not committing to anything just yet.
Listen to enough politicians and it won’t take long to hear about the lack of “affordable” healthcare, drugs, daycare, and housing. This was going on long before inflation returned after COVID. Everyone wants affordable things.
There are signs US economic growth is slowing down. In particular, jobless claims, perhaps the best high-frequency economic indicator, have averaged 235,000 per week in the last four weeks versus 211,000 in the first quarter.
The lags between a shift in monetary policy and the economic impact are long and variable. While the actions of the Federal Reserve during the pandemic were unprecedented, it finally looks like the excess money pumped into the economy has worked its way through the system. And with the M2 measure of the money supply down from its peak, the economy is reacting.
We aren’t naturally cynical about economic data, but there are things that don’t add up about the job market.
In 1852, Karl Marx said "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and transmitted from the past."
Back in the early days of COVID, there was one key indicator that signaled or predicted the high inflation ahead: the M2 measure of the money supply. Unlike in the aftermath of the Financial Panic and Great Recession of 2008-09, M2 surged at an unprecedented pace in 2020-21.
Last week, Donald Trump proposed replacing the income tax with a tariff on imports. Washington DC let out a loud, and collective, scoff. The average American was intrigued. More on this in a few…but to be clear, the idea as it stands won’t work in our current system.
Today, the Fed made it clear there’d be fewer rate cuts in 2024, most likely one or two, with a start more likely after the election than before. Meanwhile, the Fed made a mess out of explaining its logic for their new path forward.
With a Presidential election less than five months away, expect to hear a great deal of discussion about inequality: the gap between the rich, the poor, and the middle class.
One of our main contentions in recent months is that the Federal Reserve, by switching from a scarce reserve model to an abundant reserve model, has completely taken over the short-term interest rates marketplace.
Two reports on home prices arrived this morning, one for the Case-Shiller index and another from the FHFA (a government agency that regulates Fannie Mae and Freddie Mac). Both rose in March, and housing prices are up 6.5% and 6.8%, respectively, in the past year.
Back in 2008, the Federal Reserve made important changes in the way it handles monetary policy. We’ve written about them several times, but few really understand. The press won’t ask questions about it and few economists discuss them.
One theory making the rounds is that if President Trump gets back into office, inflation is going to surge.
If the financial markets have a religion, we think we know what it is: a deep and abiding faith in the ability of an omniscient Federal Reserve to ride to the rescue if and when the economic weather turns bad.
No shortage of things to discuss after today’s Fed statement and subsequent press conference.
Austrian Economics argues that growth comes from innovation and entrepreneurship, with “the market” directing resources to areas of the economy that provide the greatest returns.
The economy continued to grow in the first quarter at what we estimate is a 2.6% annual rate. That’s a slowdown from the 3.1% rate in 2023, but still good compared to the past couple of decades when the average growth rate has been 2.0%.
Mistakes in both geopolitical and fiscal policies compound over time, often leading to more mistakes.
In the waning seconds of one of the most watched women’s college basketball games ever, a foul was called.
Several years ago some politicians started demanding that the Federal Reserve get audited. We think the idea has some merits but also some drawbacks, as well.
We’ve mentioned this before, but it bears repeating. It seems that investors pay as close attention to what the government is doing, as they do to actual business news. We don’t think investors are wrong to do this, but it’s only because government has become so big.
There was zero chance the Fed was going to cut rates today; instead it was all about what today’s meeting, the dot plot, and the press conference meant for the timing and pace of rate cuts in the months ahead.
The Fed meets this week, which means investors and analysts will be sifting through Wednesday’s FOMC statement, updated economic projections, the “dot plots,” and Powell’s press conference searching for any signal – real or imagined – about what our central bank will do next.
If you only look at the headlines about the monthly payroll report, the job market has looked surprisingly strong in recent months.
Washington DC continues to spend much more than it gets in revenue. In the Calendar Year of 2023, the federal government spent $6.3 trillion but only collected $4.5 trillion in taxes.
Every day this week, investors will get data on the economy. New home sales today, then capital investment, GDP, consumer incomes and spending, manufacturing, and auto sales are on the list. All of this will feed into the outlook for what the Federal Reserve might do with interest rates this year.
A key economic mistake people make is thinking growth leads inflation. One reason they do that is because inflation is a monetary phenomenon. When money is too easy, first growth rises, and then inflation rises with a longer lag due to excess dollars in the system.
On the surface, there’s much to like about the job market. But when you get into the details, it’s not quite as strong and some things don’t add up.
Rate hikes are in the rearview mirror, now the issue is when the Federal Reserve starts to cut.
The economy is still growing. Real GDP rose at a solid 3.3% annual rate in the fourth quarter, and consumer spending was strong in December meaning the first quarter is off to a good start.
The economy slowed substantially in the last quarter of 2023 from the rapid pace of the third quarter, but, as we explain below, still expanded at a moderate rate.
The leaders of the House and Senate have come up with a new budget deal, and many people aren’t happy. It still needs passing by January 19th, or else the government, evidently, may shutdown. We doubt that this will happen, but the fight over government spending seems to drag on year after year after year.
The employment sector has undergone a tumultuous journey over the past four years, and recently the trajectory of job gains has experienced a gradual deceleration over the past year, prompting speculation about the future.
Last Friday’s jobs report showed nonfarm payrolls up 216,000 in December, beating the consensus expected 175,000. Many are arguing that this was a huge number proving that the economy is not going into recession.
Just because we still think the economy is headed for a recession, doesn’t mean we think the housing market is going to get killed.
Very early this year our economics team got a pleasant surprise: Consensus Economics, which collects forecasts from roughly 200 economists around the world, rated us the most accurate forecasters of the United States for 2022, based on our forecasts for GDP and CPI. Unfortunately, we don’t expect a repeat award for 2023.
The Federal Reserve declared victory today, projecting a soft landing as its base case in the years ahead, with more cuts in short-term rates, and with inflation gradually getting back to its 2.0% goal without a recession.
For the first time in roughly fifteen years, interest rates in the United States are about right. In economics, we call it the “neutral” or “natural” rate.
Widely regarded as a barometer for the overall stock market, the S&P 500 Index tracks the performance of 500 of the largest companies listed on U.S. stock exchanges.
New home prices are much lower than a year ago. The average price of a new home sold in October was 10.4% lower, while the median price was down 17.6%.
When Argentina entered the 20th Century, its prospects looked bright. On a per person basis, its economy was on par with Canada and Sweden and about two-thirds of the United States.
Now that we’re about to enter the Christmas shopping season, expect even more focus than usual on the consumer over the next several weeks.
The primary holder of U.S. Federal debt is, surprising to many, the U.S. federal government itself, accounting for approximately 40% of the total outstanding debt.
