Month: August 2023

July Prices

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced that the all items CPI increased 0.2% over the month and 3.2% year over year. It is interesting to observe the various measures of “inflation” that appear in the media. For example, Bloomberg highlights the monthly change:

CNBC highlights the year over year change:

A New York Times columnist spotlights food prices:

Of course there are many others including the median CPI, trimmed mean CPI and the new “supercore” measure. What all of these analysts are trying to decipher is whether “inflation” has slowed enough to warrant a pause in the FED’s tightening spree. While there are many ways to parse the underlying data, such as the cost of eggs, milk and chicken, the preferred measure of the Econsnapshot is to look at the CPI over a 3-month horizon. Month to month the data is very volatile (hence the notion of core CPI that removes two very volatile components, food and energy) and year-over-year is very slow moving. As seen in the graph below, the annualized 3 month inflation is a bit under the FED’s 2.0% target at 1.9%. The year-over-year ticked up slightly.

The BEA recently released the July PPI (Producer Price Index). While the annualized one month change popped up from -0.5% to 3.6%, this series is very noisy; the annualized 3-month change came in at -0.2% for July, up from -0.6% in June.

In our May post on prices, we noted that the BEA points to the PPI for Consumption Expenditures as being closest in coverage to the CPI. Over the past three months, the annualized growth in this index was -6.8% indicating that by this measure, consumer prices are falling. Looking back a year, the index grew at a rate of -2.7%.

However, as we noted in May, there does not appear to be a very tight relationship between the growth of either of the PPI measures and either the CPI or core CPI.

Both the CPI and PPI measures point to a moderation in prices. Given that, it seems likely that the Fed will take a pause and let the economy speak a little more before a move in either direction.

July Employment Update

Posted on by peter.c.rupert

By Paul Gomme and Peter Rupert

The BLS announced the employment situation for July. The establishment data showed a 187,000 increase in total nonfarm employment, 172,000 of which was in the private sector. Private service producing employment gained 154,000. Employment gains in May were revised down by 25,000 to 281,000 while June was revised down by 24,000 to 185,000.

Roughly 1/3 of July’s employment gains were in health care (63,000); the rest was fairly evenly distributed across sectors. There were a few declines in employment: nondurable goods, transportation and warehousing, information, to name a few, but the largest came in temporary help services that has seen eight out of the last nine months with a decline.

Average hours of work fell from 34.4 to 34.3 and combining that with the smallish increase in employment led to a fall in total hours of work. Average hourly earnings rose by $0.14 to $33.74

The household survey data from the BLS revealed a 268,000 increase in employment and 116,000 fewer people unemployed. There was almost no change in the labor force participation rate and the employment to population ratio increased slightly. The unemployment rate declined from 3.57% to 3.50%.

The Jobs Openings and Labor Turnover Summary showed almost no change in the rate of job openings, hires and separations. The number of job openings is still much higher than the number of people unemployed. There are roughly 1.64 job openings for each unemployed person.

The fairly weak recent jobs data does not provide much guidance as to how the Fed might respond. Had the reports been very strong it would have likely given reasons to continue to jack up the funds rate. Conversely had the reports been really weak, a pause would be likely. The decision will become clearer as the price data come in.