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Look behind at September 9, 2019 week: The economic data don’t change the outlook for a rate cut on September 18

A look back at the September 9 week is on a relatively uneventful series of data reports. Most of the numbers were not too much different than expected and mainly affirmed what was already known.  Fed officials were absent from the public speaking calendar during the communications blackout period around the September 17-18 FOMC meeting. However, Chair Jerome Powell’s remarks on Friday, September 6 left few doubts that another 25 basis point rate cut was on the way. News about trade negotiations with China was mildly encouraging, especially to equity markets, but left matters far from resolved.

The data on Job Openings and Labor Turnover in July released on Tuesday was rather stale after the Employment Situation for August was reported the previous Friday. While the numbers saw the level of job openings down, hirings were up. Job separations were also up, but a good part of that was from voluntary job quits which continue to reflect a healthy and active labor market. Altogether, if the numbers were off series’ records, they were still strong in the historical context. There is little evidence of slack to meet demand.

The level of initial jobless claims in the week ended September 7 fell 15,000 to 204,000. The holiday weekend and weather impacts from Hurricane Dorian may mean that the numbers will be a bit noisy for another week or two.  The insured rate of unemployment in the August 31 week held at 1.2% where it has been for 16 months. The bottom line is that in spite of some slowing in hiring, a taut labor market means laid off workers are finding jobs quickly and businesses are as yet reluctant to lose their skilled labor force.

The August inflation numbers were much as expected with energy prices – mainly gasoline – dragging down the headlines. The Final Demand PPI total was up 0.1% month-over-month, and up 1.8% compared to a year earlier. The core PPI – excluding food, energy, and trade services – was up 0.4% from the prior month and up 1.9% from a year ago. The CPI was along similar lines. The total was up 0.1% from July, and up 1.7% from August 2018. The core was up 0.3% from the prior month and 2.4% higher from a year ago. In both cases commodities prices are holding back overall price gains while services costs are rising steadily. The Import Price Index for August fell 0.5% from July and is down 2.0% from a year ago. Imported commodities are largely off on petroleum, but there is also little or no upward pressure for finished goods.

The FOMC’s preferred measure of inflation is the PCE deflator, and the core provides a look through some of the more volatile and temporary factors behind inflation. The August number will not be reported until Friday, September 27. It will come to late for the FOMC to take it into consideration at their upcoming meeting, but it looks like prices are beginning to nudge higher.

Inflation expectations are still anchored near the Fed’s 2% objective for businesses, while consumers are looking for mild increases somewhat above that. The Atlanta Fed’s Business Inflation Expectations forecast for current conditions had a mean of 1.9% in September, the same as the prior two months. Inflation expectations in the University of Michigan’s Survey of Consumers for September anticipated inflation of about 2.8% in the 1-year measure and 2.3% in the 5-year measure. Inflation expectations were higher for the short term, and lower for the medium term. Neither hints that inflation is anticipated to be anything but tame.

The preliminary University of Michigan Consumer Sentiment Index for September put confidence up a bit to 92.0 after 89.8 in August when a negative news cycle and worries about a recession were heightened. Consumers certainly remain quite optimistic overall, especially for current conditions. However, the report noted that this was the third lowest reading since the November 2016 election. Consumers experienced a bounce in confidence in the post-election months that was extended by a solid performance by the economy, and rapid job growth accompanied by respectable gains in earnings. The momentum, however, appears to now be mostly worn thin even as sentiment is good.

Business sentiment also remains good even if it is off the giddy highs of 2018. The NFIB Small Business Optimism Index slipped to 103.1 in August after 104.7 in July. Uncertainty about trade policy pulled down components related to expansion and earnings. The levels are not alarming, but it is clear that conditions cannot match up to the hectic pace at the peaks of 2018.

 

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