MIXED MESSAGES — We received some good and not so good news in the heaping pile of economic data dumped out by the federal government today. In the spirit of the holiday season, let’s start with the good: Inflation is finally relenting. A little. It’s at least no longer running out of control. And the downward trend is pretty consistent. It’s no longer risky to say that inflation has finally peaked because it pretty clearly did so in June . All the Federal Reserve’s super sized rate hikes since March appear to be finally working, at least a bit. And consumers are still spending in spite of higher interest rates, keeping any potential Fed-induced recession off stage for now. Now for the not so good: Inflation is still way too high. Consumers are keeping up their spending by quickly drawing down savings built up during Covid and increasingly turning to credit cards to keep up with expenses. And we are likely to get a November jobs number on Friday that confirms other signals that the red-hot jobs market is finally slowing down. (More on that in a moment.) But first, let’s dig into the inflation side of the story. The Personal Consumption Expenditure price index (PCE), the Fed’s Holy Grail of inflation measures, ticked down to a 6 percent pace in October over the same time last year, down from 6.3 in October. That’s good news and will likely allow the Fed to implement only a half-point rate hike at its meeting this month, rather than the hefty 0.75 point hikes at the last four meetings. If inflation keeps trending lower, the central bank could move to a quarter point hike in January and perhaps pause after that. Fed Chair Jerome Powell essentially telegraphed this approach at a speech at the Brookings Institution today . But hold off the champagne-soaked yacht parties. Six percent inflation is still three times the Fed’s preferred rate. So Powell stressed that much more work remains. And even if the Fed does manage to stop rate hikes early next year, it may feel compelled to keep them high for an extended period of time to get inflation where they want it. In addition, the Fed has had relatively limited success bringing down wage inflation in a tight labor market. Higher wages are generally a good thing, but not so much when they feed into companies passing those costs along in the form of higher prices. The problem here is that there are just nowhere close to enough people in the labor market right now to fill open jobs, putting sustained pressure on wages. On the consumer front, U.S. households kept the cash flowing in October with personal spending up 0.8 percent . But a lot of that money is coming from savings, not better earnings. Because annualized wage gains of 5 percent are just now managing to match or slightly exceed the pace of core inflation. After soaring during Covid, the personal-savings rate — what consumers have left over after monthly expenses — is down to the lowest level since 2008 and credit card debt is rising again. There is still around $1 trillion in excess savings lying around, but most of it is held by upper-income households. And now to the jobs market portion of our program. Wall Street forecasters expect to see a very respectable gain of around 200,000 jobs, a drop from 261,000 in October with the jobless rate staying at 3.7 percent. It’s possible the number could come in slightly higher than that, which would be a welcome sign that the labor market isn’t close to falling off a cliff as some fear as companies implement hiring freezes and, in some cases, layoffs. A number much lower than 200,000 would be cause for concern , especially as the number of open jobs and the rate at which people are quitting are also dropping, though from highly elevated levels. Weirdly, drops in job openings, the “quits rate” and the employment numbers are good in the sense that they should ease wage inflation, a key Fed goal. But they are certainly bad for President Joe Biden and Democrats from a political point of view. And it would be really bad if all the rate hikes trigger a significant recession, the jobs market collapses and we’ve all burned through our Covid-era savings. Don’t put that outcome on your holiday wish list. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com . Or contact tonight’s author at bwhite@politico.com or on Twitter at @morningmoneyben .
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