The Mixed Economic Data Continues
Not everyone is convinced the US will avoid a recession, but there seems to be an optimistic tilt toward the idea that we might actually do it.
As economic strength has persisted through 2023, the idea of a “soft landing” is gaining traction.
A soft landing in our current scenario would show an economic shift in which, while seemingly approaching a recession, economic growth would slowly persist and inflation would fall, negating the Federal Reserve’s need to tighten rates to induce a recession.
Another scenario is also possible, which we will call mild stagflation. We say “mild” because inflation is not as bad as in the 1970’s, but if growth and inflation are closely matched, that would indicate stagflation.
In order to have a soft landing, inflation-adjusted earnings for households would need to continue to grow, and that growth would need to find its way into the economy in the form of purchases and sales.
Are We Headed Toward a Gradual Rise in Unemployment?
Should growth be too strong, and/or inflation remain persistent, the Federal Reserve will likely view such scenarios as inflationary and continue to increase rates. In fact, in their last release of expectations, the Fed expects the unemployment rate to be 4.1% by year end, which would be a level of joblessness we have not seen since January 2022. Unless we see marked declines the inflation rate, we expect the Fed to raise rates.
Recap: Last Week’s Numbers
Payroll
The week of July 31st, the most watched data point was the payroll number, which came in at 187,000 vs. the expectation of 200,000. The total number of jobs has now been above the pre-COVID high for about 12 months. The unemployment rate also fell to 3.5%.
Average Hourly Earnings
Average Hourly Earnings also showed monthly and yearly gains, but they are down from prior months. Note that average weekly hours also declined, which blunts the growth in household earnings.
ISM Manufacturing & Services
Two other economic releases came out last week, ISM Manufacturing and ISM Services.
ISM Manufacturing rose to 46.4, which still signals contraction and is concurrent with a recession. However, ISM Services remained in expansion territory, but declined to 52.7.
The week of August 7th, we will get information on trade and inflation (CPI and PPI). Stay tuned for our next Wealth Bytes economic update for the details.
More Economic Insights
- Economic Update: Rate Cuts to Be Shelved by the FedWith recent numbers indicating a weakening of the economy—but nothing to indicate a recession—and positive job growth, it seems reasonable that the Fed will continue to focus on bringing down inflation through other means rather than by issuing rate cuts.
- Thoughts on Investing: Trust and ExpectationsThe investment advisors at REDW Wealth reflect on market performance in the first quarter of 2024 and the economic outlook for the year ahead.
- Angel Investing: Part of a Well-Rounded PortfolioDiversification is a well-known principle for investors. To help round out a portfolio, accredited investors should consider the risks and rewards of angel investing.
- Investment Intelligence: Decoding What Matters in Global MarketsA panel of Financial Planning professionals from REDW Wealth will share their insights on the global economy and the markets, past and present.
- Reducing Risks in Retirement Plan Management with Paul Madrid, CPA®, CFP®, AIFA®This episode, Wes Benally and Paul Madrid discuss the Tribal fiduciary role and reducing risk in the management of employer-sponsored retirement plans.
© 2023 REDW Wealth LLC. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice. Information and instruction shared in the article above do not guarantee outcomes, performance, or quality of services provided to REDW Wealth Management clients by REDW Wealth Management or its employees. Adherence to our fiduciary duty is not a guarantee of client satisfaction or any particular outcome. Advisory, Assurance, and Tax is offered through REDW LLC. Wealth Management is offered through REDW Wealth LLC.
